-Refer to Figure 16-1

question 8

Multiple Choice

-Refer to Figure 16-1.Suppose a demand shock causes output to rise above full employment and increases money demand from to .If the Fed wants to maintain the interest rate at r₁,it will

• A) use a constant monetary supply policy
• B) increase the money supply,which will increase aggregate demand and increase output further in the short run
• C) increase the money supply,which will increase the price level,decrease aggregate demand,and lower output back to full employment
• D) decrease money demand,decrease the interest rate,and decrease aggregate demand until output returns to full employment
• E) be unable to meet its interest rate target without causing a recession

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