If the Fed decreases the quantity of money in circulation, interest rates _____, investment spending _____, and the aggregate demand curve shifts to the _____.
A) decrease; increases; right
B) decrease; decreases; left
C) increase; decreases; left
D) increase; decreases; right

Question

Quizplus · Accepted Answer

When the Fed decreases the quantity of money in circulation, interest rates increase because there is less money available to borrow. Higher interest rates make borrowing more expensive, which decreases investment spending. With lower investment spending, the aggregate demand curve shifts to the left.

If the Fed Decreases the Quantity of Money in Circulation