Refer to the given figure where the nominal interest rate equals 6 percent and the money supply equals 600. If the Federal Reserve wants to raise the interest rate to 8 percent, it must ________ the money supply to ________.
A)increase; 800
B)decrease; 800
C)increase; 400
D)decrease; 400

Question

Refer to the given figure where the nominal interest rate equals 6 percent and the money supply equals 600.  If the Federal Reserve wants to raise the interest rate to 8 percent, it must ________ the money supply to ________.
A)increase; 800 
B)decrease; 800 
C)increase; 400 
D)decrease; 400

Quizplus · Accepted Answer

The nominal interest rate is determined by the intersection of the money supply and money demand curves. For the Fed to increase the nominal interest rate to 8 percent, it must decrease the money supply to 400.

Refer to the Given Figure Where the Nominal Interest Rate