Answer to Question #219458 in Microeconomics for nicky

Question

"The central bank chose to reduce the money supply in order to combat inflation."

Identify how the aggregate demand curve might be shifted by the above monetary or fiscal policies. Illustrate (draw a graph) and explain the impact described above.

Answer 1

In this case, the country will be focusing on increasing the real GDP, therefore, it will be entitled to increase price level to ensure the drop of money experienced is recovered.