What is the likely impact of a decrease in the money supply on intrest rates, real GDP, and the overall price level?
a decrease in the money supply leads to an increase in intrest rates. as intrest rates rise, the cost of capital increases, leading to a decline in investment spending and a shift left in the aggregate demand curve. as the aggregate demand cureve shifts left, real GDP and the overall prices levels fall. thus, a decrease in the money supply leads to :(1) an increase in intrest rates (2) a decreasse in real GDP and (3) a decrease in the overall price level.