-Refer to the above graphs,in which the numbers in parentheses after the AD₁,AD₂,and AD₃ labels indicate the level of investment spending associated with each curve,respectively.All numbers are in billions of dollars.The interest rate and the level of investment spending in the economy are at point D on the investment demand curve.To achieve the goal of a non-inflationary full-employment output Q_f in the economy,the monetary authorities should: A) decrease aggregate demand by increasing the interest rate from 2 to 4 percent. B) decrease aggregate demand by increasing the interest rate from 4 to 6 percent. C) increase aggregate demand by decreasing the interest rate from 4 to 2 percent. D) increase the level of investment spending from $120 billion to $150 billion.

Question

Quizplus · Accepted Answer

To achieve full-employment output Q_f, aggregate demand needs to decrease, as it currently exceeds full-employment output at point D. The most effective way to decrease aggregate demand is to increase the interest rate, which would decrease investment spending and overall spending in the economy. Option B is the only choice that increases the interest rate, from 4 to 6 percent, which would help to decrease aggregate demand and achieve full-employment output at point Q_f.

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