Which of the following would lead the Fed to increase the money supply under an interest rate rule?
A) an unexplained decrease of money demand
B) an increase in taxes
C) a decrease in spending that caused the money demand curve to decrease
D) an increase in spending that caused the money demand curve to increase
E) a decrease in government spending.

Question

Quizplus · Accepted Answer

An increase in spending that caused the money demand curve to increase would lead to an increase in the money supply under an interest rate rule as there would be a higher demand for money, thus requiring the Fed to increase the money supply to maintain the interest rate target.

Which of the Following Would Lead the Fed to Increase