Refer to the diagrams. The numbers in parentheses after the AD 1 , AD 2 , and AD 3 labels indicate the levels of investment spending associated with each curve. All figures are in billions. If the money supply is MS 1 and the goal of the monetary authorities is full-employment output Q f , they should:

A. maintain the money supply at $80.
B. increase the money supply from $80 to $120.
C. increase the money supply from $80 to $100.
D. decrease the money supply from $80 to $60.

ANSWER:

C. increase the money supply from $80 to $100.