Suppose the interest rate is currently 5%. Which of the following statements bes

Question

Suppose the interest rate is currently 5%. Which of the following statements best explains how the money market moves toward the equilibrium interest rate of 3%?





A. The Federal Reserve raises interest rates to align with the current rate of 5%.

B. People are unwilling to hold as much money as the Federal Reserve has supplied. This puts downward pressure on interest rates. The curves do not shift.

C. Households need more money for purchases, increasing the demand for money and shifting the curve to the right.

D. The Federal Reserve decreases the money supply, shifting the curve to the left.



and Which of the following is an example of a fiscal policy?




A. Businesses become more confident about the economy and increase investment by $3 billion.

B. The Federal Reserve reduces the reserve requirement to 11%.

C. Congress reduces individual income taxes by 10%.

D. Congress eliminates regulations, making business expansion easier.

Explanation / Answer

D. The Federal Reserve decreases the money supply, shifting the curve to the left. C. Congress reduces individual income taxes by 10%.

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