- Refer to the above diagrams, 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 interest rate in the economy is 4 percent. What should the Fed do to achieve a noninflationary full-employment level of real GDP (Q_f)_? A) Increase the money supply from $75 to $150 billion. B) Increase the money supply from $150 to $225 billion. C) Decrease the money supply from $225 to $150 billion. D) Make no change in the money supply.

Question

Quizplus · Accepted Answer

To achieve a noninflationary full-employment level of real GDP, the Fed should decrease the money supply to reduce aggregate demand and prevent inflation.

- Refer to the Above Diagrams, in Which the Numbers