Use the following diagrams to answer the next question.
Assume the economy is on aggregate demand AD4. The Fed should ________.
A. move from MS1 to MS2 to lower interest rate and lower investment.
B. move from MS1 to MS2 to lower interest rate and increase investment.
C. move from MS1 to MS3 to raise interest rate and lower investment.
D. move from MS1 to MS3 to raise interest rate and raise investment.
Answer: C
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Indicate whether the statement is true or false
If the economy is currently in equilibrium at a level of GDP that is above potential GDP, which of the following would move the economy back to potential GDP?
A) a decrease in interest rates B) a decrease in wealth C) a decrease in the value of the dollar relative to other currencies D) an increase in business confidence
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