The Fed's response to AG>o Suppose Congress increases G. Possible fed responses 1. hold M constant 2. hold r constant 3. hold y constant In each case, the effects of the a are different CHAPTER 11 Aggregate Demand Il slide 7CHAPTER 11 Aggregate Demand II slide 7 The Fed’s response to G > 0 ▪ Suppose Congress increases G. ▪ Possible Fed responses: 1. hold M constant 2. hold r constant 3. hold Y constant ▪ In each case, the effects of the G are different: