Exhibit 16-6 -If the Fed Is Targeting the Money Supply and the Supply

Multiple Choice

Exhibit 16-6
-If the Fed is targeting the money supply and the money demand shifts from D_m to D_m' in Exhibit 16-6, 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