Under a flexible exchange rate regime, an increase in real money demand
A) moves the AA curve to the right.
B) moves the AA curve to the left.
C) leaves the AA curve unchanged.
D) moves the DD curve to the right.
E) moves the DD curve to the left.

Question

Quizplus · Accepted Answer

An increase in real money demand causes the interest rate to increase, which in turn reduces demand for investment and therefore causes a reduction in output. This leads to a leftward shift in the AA curve.

Under a Flexible Exchange Rate Regime, an Increase in Real