Use the Following to Answer Questions

question 3

Multiple Choice

Use the following to answer questions:
Figure: Short-Run Determination of the Interest Rate
-(Figure: Short-Run Determination of the Interest Rate) Refer to Figure: Short-Run Determination of the Interest Rate. If the money supply is at MS₁ and the Fed conducts expansionary monetary policy, in the short run the interest rate drops to r₂. In the long run prices will _____ thereby ___________the demand for money.

• A) decrease, decreasing
• B) decrease, increasing
• C) increase, decreasing
• D) increase, increasing