Suppose the money demand curve shifts rightward.Which of the following is true about the Fed's options?
A)The Fed can keep the interest rate from rising only if it increases the money supply.
B)The Fed cannot prevent the interest rate from rising.
C)The Fed can prevent the interest rate from rising without changing the money supply.
D)If the Fed expands the money supply,the interest rate will rise even further.
E)The Fed should reduce the money supply if it wishes to prevent the interest rate from rising.

Question

Quizplus · Accepted Answer

To prevent the interest rate from rising when the money demand curve shifts rightward, the Fed can increase the money supply to meet the higher demand for money, thus keeping interest rates stable.

Suppose the Money Demand Curve Shifts Rightward