Exhibit 15-6 -If the Fed Is Targeting Interest Rates and Money Demand

question 66

Multiple Choice

Exhibit 15-6
-If the Fed is targeting interest rates and money demand shifts from D_m to D_m' in Exhibit 15-6,the Fed will

• A)do nothing and the interest rate will rise to i'
• B)do nothing and the interest rate will settle at i
• C)decrease the money supply to restore its target of i
• D)increase the money supply to restore its target of i
• E)decrease money demand back to D_m to restore its target of i

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Definitions:

Model Trains

Scaled-down reproductions of trains, used as a hobby to build and display rail transport scenes.

Rate

A measure used to quantify the frequency, occurrence, or percentage of a certain event or outcome over a specified period or among a specific sample size.

Additional Money

Funds that are required or provided beyond the initially agreed amount or investment.

Simple Interest

Simple interest is a method of calculating interest where the interest charge is computed only on the original principal, and not on the interest accrued over time.