FIGURE 27-5 Refer to Figure 27-5

FIGURE 27-5 Refer to Figure 27-5.This economy begins in equilibrium with M_S⁰,M_D⁰ and real GDP equal to potential GDP (with and ) .Now suppose there is an increase in the money supply to $540 billion.The initial response in this economy is

A) an increase in the demand for money,causing a shift of the money demand curve to M_D¹,and a fall in interest rate to 3%.
B) an increase in the demand for money,causing a shift of the money demand curve to M_D¹,and a fall in the interest rate to 2%.
C) the AD and AS curves shift up simultaneously.
D) a movement down along the money demand curve to a lower interest rate at 2%.
E) an increase in the demand for money,causing a shift of the money demand curve to M_D² and the interest rate remains at 4%.