Suppose investment spending falls.To offset the change in output the Federal Reserve could
A)increase the money supply.This increase would also move the price level closer to its value before the decline in investment spending.
B)increase the money supply.However,this increase would move the price level farther from its value before the decline in investment spending.
C)decrease the money supply.This decrease would also move the price level closer to its value before the decline in investment spending.
D)decrease the money supply.However,this increase would move the price level farther from its value before the decline in investment spending.

Question

Quizplus · Accepted Answer

By increasing the money supply, the Federal Reserve could stimulate spending and investment, helping to offset the decline in investment spending. This would also help to bring the price level back towards its original value.

Suppose Investment Spending Falls