Refer to the Graphs Above, in Which the Numbers in Parentheses

question 3

Multiple Choice

Refer to the graphs above, in which the numbers in parentheses near the AD₁, AD₂, and AD₃ labels indicate the level of investment spending associated with each curve, respectively. All numbers are in billions of dollars. The interest rate and the level of investment spending in the economy are at point D on the investment demand curve. To achieve the long-run goal of a noninflationary full-employment output Q_f in the economy, the Fed should try to:

• A) Decrease aggregate demand by increasing the interest rate from 2 to 4 percent
• B) Decrease aggregate demand by increasing the interest rate from 4 to 6 percent
• C) Increase aggregate demand by decreasing the interest rate from 4 to 2 percent
• D) Increase the level of investment spending from $120 billion to $150 billion

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Definitions:

Alpha

In statistics, often refers to the significance level used in hypothesis testing, typically set at 0.05 or 0.01, representing the probability of incorrectly rejecting the null hypothesis.

Alpha

In statistics, the threshold of probability at which the null hypothesis is rejected, often set at 0.05 or 5%.

Type I Error

The error that occurs in hypothesis testing when a true null hypothesis is incorrectly rejected, falsely indicating a significant effect or difference.

Alpha

A threshold value used in hypothesis testing that defines the maximum probability of committing a Type I error.