Refer to the given figure. If the Federal Reserve wants to lower the interest rate to 3 percent, it must ________ the money supply to ________.
A)increase; 300
B)decrease; 300
C)increase; 900
D)increase; 700

Question

Refer to the given figure.  If the Federal Reserve wants to lower the interest rate to 3 percent, it must ________ the money supply to ________.
A)increase; 300 
B)decrease; 300 
C)increase; 900 
D)increase; 700

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 3 percent, it must increase the money supply to 700.

Refer to the Given Figure