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In: Economics

Refer to the graphs, in which the numbers in parentheses near the AD1, AD2, and AD3...

XInvestment Demand 12 0 $50 100 150 Investment (s) 0$75 150 225 Investment (S) AS AD, (I-$150) AD2 (I-$100) AD, (I-S50) ai Re

Refer to the graphs, 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 economy is at point Y on the investment demand curve. Given these conditions, what policy should the Fed pursue to achieve a noninflationary, full-employment level of real GDP?

A) increase aggregate demand from AD3 to AD2.

B) decrease the money supply from $225 to $150 billion.

C) increase interest rates from 4 to 8 percent.

D) make no change in monetary policy.

XInvestment Demand 12 0 $50 100 150 Investment (s) 0$75 150 225 Investment (S) AS AD, (I-$150) AD2 (I-$100) AD, (I-S50) ai Real GDP

Solutions

Expert Solution

At the investment level of Y the demand curve is Ad2 and the money supply is 150. Interest rate is 8. the market is already at full employment level with no inflation The answer is "D". make no change in the monetary policy.

Rahul Sunny answered 2 years ago
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