-Refer to Figure . Assume the Fed is targeting a particular level of money supply (M_t) as measured by one of the monetary aggregates. If money demand increases from D to D', what will happen if the Fed continues to leave the money supply unchanged? A)The interest rate will rise. B)The interest rate will fall. C)The money demand curve will shift leftward. D)The money supply curve will increase.

Question

Quizplus · Accepted Answer

When money demand increases from D to D' and the Fed leaves the money supply unchanged, the interest rate will rise due to the increased competition for the fixed amount of money available.