If the Fed Reduces the Discount Rate, Which of the Following

question 115

Multiple Choice

If the Fed reduces the discount rate, which of the following are most likely to result?

• A) The money supply curve shifts rightward, and the equilibrium interest rate falls in the money market.
• B) Investment declines, causing the aggregate demand curve to shift leftward, reducing equilibrium real GDP and thus slowing the economy.
• C) Investment rises, causing the aggregate demand curve to shift rightward, increasing equilibrium real GDP and thus accelerating the economy.
• D) Both a. and b. above are correct.
• E) Both a. and c. above are correct.

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