Refer to the Graphs Below

question 57

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.Suppose the economy is in equilibrium at point C on the aggregate demand curve.Which of the following should the monetary authorities pursue to achieve a non-inflationary full-employment level of real GDP?

• A)They should increase the money supply from $75 billion to $150 billion.
• B)They should increase the money supply from $150 billion to $225 billion.
• C)They should decrease the money supply from $225 billion to $50 billion.
• D)They should decrease interest rates from 12 percent to 4 percent.

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Definitions:

Binding Contract

A legally enforceable agreement between two or more parties that is bound by law and has legal obligations.

Verbal Offer

An offer made through spoken communication rather than in written form, which can be legally binding under certain conditions.

Affirmatively

In a manner that expresses agreement or conformation; also, acting in a positive or confirming way.

Irrevocable

Inability to be recalled or revoked; permanent and unchangeable.