6 Interest rate (%)69Ms, MS MS,$80 100120Amount of moneydemanded and suppliedO1131T0DAD, (7-$40)Real GDPInvestmentdemand05O50 60$40InvestmentASAD, (7-$60)AD, (I=$50)Interest rateQr 96. Refer to the above diagrams. The numbers in parentheses after the AD1, AD2, and AD3 curves indicate the levels ofinvestment spending associated with each curve. All figures are in billions. If the money supply is MS3, AD is AD3, and thegoal of the Fed is to close the inflationary gap by decreasing AD to AD2, one option is to in order torespectively.A. buy government bonds, decrease the money supply from $120 to $100.B. lower the reserve requirement, increase the money supply from $120 to $100.C. raise the reserve requirement, maintain the money supply at $120.D. sell government bonds, decrease the money supply from $120 to $100.

An inflationary gap, in financial aspects, is the sum by which the real total national output…

Answered: Investme deman $40 50 60 Investment AS…

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Investme deman $40 50 60 Investment AS AD, (7-$60)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Interest rate (%)
6
9
Ms, MS MS,
$80 100
120
Amount of money
demanded and supplied
O
1
1
3
1
T
0
D
AD, (7-$40)
Real GDP
Investment
demand
05
O
50 60
$40
Investment
AS
AD, (7-$60)
AD, (I=$50)
Interest rate
Qr

96. Refer to the above diagrams. The numbers in parentheses after the AD1, AD2, and AD3 curves indicate the levels of
investment spending associated with each curve. All figures are in billions. If the money supply is MS3, AD is AD3, and the
goal of the Fed is to close the inflationary gap by decreasing AD to AD2, one option is to in order to
respectively.
A. buy government bonds, decrease the money supply from $120 to $100.
B. lower the reserve requirement, increase the money supply from $120 to $100.
C. raise the reserve requirement, maintain the money supply at $120.
D. sell government bonds, decrease the money supply from $120 to $100.

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