Question

Trace through with the assistance of diagrams, the effect of a fall in the money supply on investment demand and aggregate demand. What will happen to real GDP, unemployment and inflation? What factor(s) will determine the effectiveness of this policy.

Answer 1

When the money supply on investment and aggregate demand falls the real GDP incresases ,unemployment increases and the rate of inflation increases. The money policy and fiscal policy are used to determine the effectiveness of this policy.