Refer to the given figure where the nominal interest rate equals 6 percent and the money supply equals 600. If the Federal Reserve wants to lower the interest rate to 4 percent, it must ________ the money supply to ________.
A)increase; 800
B)decrease; 800
C)increase; 1,000
D)decrease; 400

Question

Refer to the given figure where the nominal interest rate equals 6 percent and the money supply equals 600.  If the Federal Reserve wants to lower the interest rate to 4 percent, it must ________ the money supply to ________.
A)increase; 800 
B)decrease; 800 
C)increase; 1,000 
D)decrease; 400

Quizplus · Accepted Answer

The nominal interest rate is determined by the intersection of the money supply and money demand curves. For the Fed to decrease the interest rate to 4 percent, it must increase the money supply to 800.

Refer to the Given Figure Where the Nominal Interest Rate