If money demand increases and the Fed attempts to keep interest rates stable,then
A)the money supply will increase
B)the money supply will decrease
C)velocity will increase
D)velocity will decrease
E)the Fed will sell government securities

Question

Quizplus · Accepted Answer

If money demand increases and the Fed attempts to keep interest rates stable, the only option for the Fed is to increase the money supply by purchasing government securities. This would inject more money into the economy and keep interest rates stable. Therefore, the correct choice is A.

If Money Demand Increases and the Fed Attempts to Keep