Exhibit 16-6 Money, investment and product markets 
In Exhibit 16-6, if the Fed believes the economy is at AD3, how might it engineer a decline in the price level?
A) By decreasing the money supply, the interest rate falls, investment rises, and aggregate demand falls, causing the price level to fall.
B) By decreasing the money supply, the interest rate rises, investment rises, and aggregate demand rises, causing the price level to fall.
C) By decreasing the money supply, the interest rate rises, investment falls, and aggregate demand falls, causing the price level to fall.
D) By increasing the money supply, the interest rate rises, investment rises, and aggregate demand falls, causing the price level to fall.
E) By increasing the money supply, the interest rate rises, investment falls, and aggregate demand rises, causing the price level to fall.
Correct Answer:
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