Use the following graphs to answer the next question.
In the graphs, 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 of Qf in the economy, the Fed should try to ________.
A. increase aggregate demand by decreasing the interest rate from 4% to 2%
B. decrease aggregate demand by increasing the interest rate from 2% to 4%
C. decrease aggregate demand by increasing the interest rate from 4% to 6%
D. increase the level of investment spending from $120 billion to $150 billion
Answer: C
You might also like to view...
Effectively managing aggregate demand in order to stabilize nominal GDP requires
A) policy makers to know the size of the gap between current demand and demand at equilibrium. B) only that policy makers know what level of aggregate demand is necessary for full employment. C) successful economic forecasting. D) that nominal GDP be the same as real GDP. E) very little information about the economy because the market system is an efficient generator of high-quality information.
Costs borne solely by the individuals who incur them are
A) private costs. B) social costs. C) internality. D) common property.
Supplier power tends to be lower when
a. Suppliers are less concentrated b. There are low costs to switching between suppliers c. Both A&B d. None of the above
Good A has many close substitutes, while good B has no close substitutes. Which of the following is true?
a. the demand for both goods is likely to be inelastic. b. the demand for both goods is likely to be elastic. c. the demand for good A is likely to be elastic, the demand for good B inelastic. d. the demand for good B is likely to be elastic, the demand for good A inelastic. e. both goods will have elasticity of 1.