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Exhibit 16-6 -If the Fed Is Targeting Interest Rates and Money Demand

Question 177

Multiple Choice

Exhibit 16-6 Exhibit 16-6 -If the Fed is targeting interest rates and money demand shifts from D<sub>m</sub> to D<sub>m</sub>' in Exhibit 16-6, the Fed will A) do nothing and the interest rate will rise to i' B) do nothing and the interest rate will settle at i C) decrease the money supply to restore its target of i D) increase the money supply to restore its target of i E) decrease money demand back to D<sub>m</sub> to restore its target of i
-If the Fed is targeting interest rates and money demand shifts from Dm to Dm' in Exhibit 16-6, the Fed will


A) do nothing and the interest rate will rise to i'
B) do nothing and the interest rate will settle at i
C) decrease the money supply to restore its target of i
D) increase the money supply to restore its target of i
E) decrease money demand back to Dm to restore its target of i

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