(Figure: Interest Rate Targeting) the Figure Shows Interest Rate Targeting

Multiple Choice

(Figure: Interest Rate Targeting) The figure shows interest rate targeting. Initially, the fed funds interest rate equilibrium (E) is the targeted interest rate (iT) . If money demand increases, the Federal Reserve _____ to maintain the interest rate target.

A) decreases the interest rate
B) increases the interest rate
C) decreases the money supply
D) increases the money supply