Use the "Fiscal Policy with a Fixed Money Supply" Figure 35-2. Assume that this economy is at E1. Now government deficit spending is increased, but the Federal Reserve does NOT expand the money supply. According to this model:
a. real GDP will expand just as much as if the Federal Reserve had expanded the money supply
b. real GDP will decrease because the Federal Reserve did not expand the money supply
c. real GDP will expand, but not as much as if the Federal Reserve had expanded the money supply
d. interest rates will decrease
e. real GDP will expand by more than it would have, if the Federal Reserve had expanded the money supply
