Exhibit 15-4 -If the Fed Is Targeting Interest Rates and Money Demand

Multiple Choice

Exhibit 15-4
-If the Fed is targeting interest rates and money demand shifts from D_m to D_m' in Exhibit 15-4,the Fed will

A) do nothing and the interest rate will rise to i'
B) do nothing and the interest rate will settle at i
C) decrease the money supply to restore its target of i
D) increase the money supply to restore its target of i
E) decrease money demand back to D_m to restore its target of i