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if the economy is at potential output, and the fed decreases the money supply, in the short run, the likely result will be a(n) in investment spending and a(n) in consumer spending.

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If the economy is at potential output and the Fed decreases the money supply, in the short run, the likely result will be a decrease in investment spending and a decrease in consumer spending.

When the Fed decreases the money supply, it becomes more difficult for businesses and individuals to borrow money. This leads to higher interest rates, which discourages investment spending by businesses. When businesses are unable to borrow at favorable rates, they may delay or cancel investment projects, resulting in a decrease in investment spending.

Similarly, the decrease in the money supply also affects consumer spending. With higher interest rates, borrowing becomes more expensive for individuals as well. This reduces their ability to finance big-ticket purchases such as cars or houses. Consequently, consumer spending is likely to decrease as people cut back on their discretionary spending.

In summary, a decrease in the money supply by the Fed when the economy is at potential output will likely lead to a decrease in both investment spending and consumer spending in the short run.

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