Suppose there is a decrease in aggregate demand.If the Fed wants to stabilize output it could
A)buy bonds.These purchases also move the price level closer to its original level.
B)buy bonds.However these purchases move the price level farther from its original level.
C)sell bonds.These sales also move the price level closer to its original level.
D)sell bonds.However these sales move the price level farther from its original level.

Question

Quizplus · Accepted Answer

Buying bonds increases the money supply, which can lead to an increase in spending and aggregate demand. This can help stabilize output, without causing as much inflationary pressure as selling bonds would. Additionally, buying bonds moves the price level closer to its original level, which can help prevent deflationary pressures.

Suppose There Is a Decrease in Aggregate Demand