Figure 4-2 -Employing Figure Above, the Money Market Is Initially in Equilibrium

Multiple Choice

Figure 4-2
-Employing Figure above, the money market is initially in equilibrium at point G and after the economy moves to equilibrium, the Federal Reserve increases the money supply by 500. We would observe

A) the interest rate first rises to 7.5% and Y to 3500.
B) the interest rate first rises to 7.5% then falls to 5%.
C) Y rises to 4000 as interest rates remain stable.
D) the economy moves from point G to C, to F then D.