-Refer to the above diagrams, in which the numbers in parentheses near the AD₁, AD₂, and AD₃ labels indicate the level of investment spending associated with each curve. All figures are in billions. The economy is at point X on the investment demand curve. Given these conditions, what policy should the Fed pursue to achieve a noninflationary full-employment level of real GDP (Q_f)_? A) Decrease aggregate demand from AD₁ to AD₂. B) Increase the money supply from $75 to $150 billion. C) Increase interest rates from 4 to 8 percent. D) Make no change in monetary policy.

Question

Quizplus · Accepted Answer

Increasing the money supply from $75 to $150 billion would lower interest rates, encouraging investment and shifting aggregate demand to achieve full employment without causing inflation.

-Refer to the Above Diagrams, in Which the Numbers in Parentheses