In a normal AD-AS diagram with an upward-sloping AS-curve, if the government wanted to maintain a fixed level of output, it would need to respond to a decrease in money supply by
A)decreasing government expenditures
B)increasing government spending
C)urging the Fed to sell bonds in the open market
D)increasing income taxes
E)decreasing taxes and government spending by the same amount

Question

Quizplus · Accepted Answer

A decrease in money supply would cause a leftward shift in the AD-curve, resulting in a decrease in output level. To maintain the output level fixed, the government would need to increase its spending to shift the AD-curve back to its original position.

In a Normal AD-AS Diagram with an Upward-Sloping AS-Curve, If