With the aid of a diagram, explain how a reduction in the money supply effects the price level, and the value of money in an economy. Outline one policy tool the central bank could use to try and decrease the money supply

With the aid of a diagram, explain how a reduction in the money supply effects the price level, and the value of money in an economy. Outline one policy tool the central bank could use to try and decrease the money supply

Economics Today and Tomorrow, Student Edition

1st Edition

ISBN:9780078747663

Author:McGraw-Hill

Publisher:McGraw-Hill

Chapter15: The Federal Reserve System And Monetary Policy

Section: Chapter Questions

Problem 14AA

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Question

With the aid of a diagram, explain how a reduction in the money supply

effects the price level, and the value of money in an economy. Outline one

policy tool the central bank could use to try and decrease the money supply

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Step 1: Define Money Market

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Step 2: Illustrate what happens when there is a reduction in the MS.

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Step 3: State what tool would central bank use to reduce the MS.

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