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

question 161

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. All figures are in billions. The economy is at point Y on the investment demand curve. Given these conditions, what policy should the Fed pursue to achieve a noninflationary full-employment level of real GDP?

• A) Increase aggregate demand from AD₃ to AD₂
• B) Decrease the money supply from $225 to $150 billion
• C) Increase interest rates from 4 to 8 percent
• D) Make no change in monetary policy

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Definitions:

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