In the short run, how does the Fed change the nominal interest ...

[oliviahorn72]

In the short run, how does the Fed change the nominal interest rate?
 
  What will be an ideal response?

Question 2

The supply curve shifts rightward from S0 to S2 when the U.S. interest rate ________ and foreign interest rates are unchanged. The supply curve shifts rightward from S0 to S2 when the expected future exchange rate ________.
 
  A) falls; falls
  B) rises; rises
  C) falls; rises
  D) rises; falls
  E) None of the above answers is correct because the factors mentioned lead to movements along the demand curve and not to shifts of the demand curve.

[morganmarie791]

Answer to Question 1

The Fed changes the nominal interest rate by changing the quantity of money. If the Fed increases the quantity of money, the supply of money curve shifts rightward and the equilibrium nominal interest rate falls. If the Fed decreases the quantity of money, the supply of money curve shifts leftward and the equilibrium nominal interest rate rises.

Answer to Question 2

A