The Graph Shown Displays the Relationship Between Money and the Interest

question 104

Multiple Choice

The graph shown displays the relationship between money and the interest rate. If the money supply in the economy is currently at M^S2, and the Fed uses open market operations to move the money supply to M^S1, what is the overall effect on the economy?

• A) Aggregate demand decreases, causing GDP to fall.
• B) Aggregate supply decreases, causing GDP to fall.
• C) Aggregate demand increases, causing GDP to rise.
• D) The LRAS curve moves to the FE level of output.

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