Refer to the Graphs Below

question 5

Multiple Choice

Refer to the graphs below.The first graph shows the money market of an economy, and the second graph shows the market for goods and services in the economy. In the above diagrams, the numbers in the parentheses after the AD₁, AD₂, and AD₃ labels indicate the levels of investment spending associated with each AD curve.All figures are in billions.Q_f is the full-employment level of real output.The interest rate in the economy is 4 percent.Which of the following should the monetary authorities do to achieve a non-inflationary full-employment level of real GDP?

• A)They should increase the money supply from $75 billion to $225 billion.
• B)They should decrease the money supply by $150 billion.
• C)They should decrease the money supply from $225 billion to $150 billion.
• D)They should increase the money supply by $200 billion.

---

Definitions:

Pre-Tax Cost of Debt

The rate of return that a company pays on its debt before taking into account taxes.

Weighted Average Cost of Capital (WACC)

The average rate of return a company is expected to pay its security holders to finance its assets, weighted by the proportion of equity and debt in the company's capital structure.

Coupon Rate

The rate of interest a bond pays annually, expressed as a percentage of its nominal value.

Dividend Growth Rate

The annualized percentage rate of growth of a company’s dividend payout, indicating the stability and growth prospects of the company to investors.