-Refer to Figure. Assume the Fed is targeting a particular interest rate (i_t). If money demand increases from D to D', what must the Fed do to maintain the interest rate target? A)decrease money supply B)increase the interest rate C)increase the money supply D)The Fed cannot maintain it

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Quizplus · Accepted Answer

To maintain the targeted interest rate when money demand increases, the Federal Reserve must increase the money supply. This action offsets the increased demand for money, helping to keep the interest rate at its targeted level.