pacmandefense

Damil:

When money supply decreases = consumers will spend less = producers will seek to hire less & produce less = decrease in aggregate supply. << I don't think so. When consumption expenditure falls, aggregate demand falls. You can say that aggregate supply falls when aggregate demand falls. There's just a movement along the agregate supply curve to a lower price level with higher unemployment.

Schweser is totally wrong here. The only effects of an increase in real interest rates on agregate supply is that agregate supply INCREASES (not decreases as schweser insists). See- real business cycle theory from the curriculum.

Any helpers?