Use the following graph to answer the next question.

In the graphs, the numbers in parentheses near the AD₁, AD₂, and AD₃ labels indicate the level of investment spending associated with each curve, respectively. All numbers are in billions of dollars. The interest rate and the level of investment spending in the economy are at point C on the investment demand curve. To achieve the long-run goal of a noninflationary, full-employment output of Q_f in the economy, the Fed should try to _____.

a. increase aggregate demand by increasing the interest rate

b. increase aggregate demand by decreasing the interest rate

c. make no change in the interest rate
 

Transcribed Image Text:

10 Interest Rate (%) 8 2 B Investment Demand C D W 0 $30 60 90 120 150 Investment ($) Price Level 0 AS Q₁ Real GDP ($) AD, (I=120) -AD₂ (I=90) -AD, (I=60) 10 Interest Rate (%) 8 2 B Investment Demand C D W 0 $30 60 90 120 150 Investment ($) Price Level 0 AS Q₁ Real GDP ($) AD, (I=120) -AD₂ (I=90) -AD, (I=60)

Answer rating: 100% (QA)

Based on the graphs provided The investment demand curve shows that lo... View the full answer