Answer to Question #217919 in Macroeconomics for Muhammad Ali

Question

Discuss what will happen
to the value of the U.S. dollar if the State bank of Pakistan decides to contract the money supply
to fight inflation.

Answer 1

A drop in the money supply is accompanied by a corresponding decrease in nominal output, also known as GDP ( GDP ). Consumer spending will be affected by the reduction in the money supply. The AD curve will move to the left as a result of this decline.