(Answered) When the Federal Reserve decreasesdecreases the growth rate of the money​ supply, the income effect…

➤ Why does the income effect cause interest rates to fall when money supply growth decreases?
The income effect arises because slower money growth reduces aggregate spending and income. Lower income cuts transaction demand for money and shifts money demand left. With less demand for liquid balances, equilibrium nominal interest rates tend to fall. This downward pressure appears after the initial liquidity squeeze and as real activity adjusts downward.