-Refer to the above diagrams,in which the numbers in parentheses after the AD₁,AD₂,and AD₃ labels indicate the level of investment spending associated with each curve.All figures are in billions.The interest rate in the economy is 4 percent.What should monetary authorities do to achieve a non-inflationary full-employment level of real GDP? A) increase the money supply from $75 to $150 billion B) increase the money supply from $150 to $225 billion C) decrease the money supply from $225 to $150 billion D) make no change in the money supply

Question

Quizplus · Accepted Answer

From the diagrams, we can see that the full-employment level of real GDP is at $300 billion, indicated by the intersection of the aggregate demand and the long-run aggregate supply curves. However, at the current money supply level of $225 billion, the aggregate demand is shifted to the right, causing inflationary pressure. To achieve a non-inflationary full-employment level of real GDP, the monetary authorities need to decrease the money supply, shifting the aggregate demand curve to the left until it intersects with the long-run aggregate supply curve at the full-employment level of real GDP. Thus, choice C is the best option.

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