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Figure: Monetary Policy
-(Figure: Monetary Policy)Refer to the figure.Assume that the economy is initially at point Y in the graph.In the best case scenario,the Fed will:
A) increase money supply to take the economy to point X.
B) decrease money supply to take the economy to point W.
C) increase money supply to take the economy to point W.
D) decrease money supply to take the economy to point X.

Question

Use the following to answer questions 
Figure: Monetary Policy 
-(Figure: Monetary Policy)Refer to the figure.Assume that the economy is initially at point Y in the graph.In the best case scenario,the Fed will:
A) increase money supply to take the economy to point X. 
B) decrease money supply to take the economy to point W. 
C) increase money supply to take the economy to point W. 
D) decrease money supply to take the economy to point X.

Quizplus · Accepted Answer

Increasing the money supply can lower interest rates, encouraging investment and spending, which can help move the economy toward point X, representing a higher level of output.

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