-Refer to the above diagrams, in which the numbers in parentheses near the AD₁, AD₂, and AD₃ labels indicate the levels of investment spending associated with each curve. All figures are in billions. A shift in the aggregate demand curve from AD₃ to AD₂ can be achieved by Federal Reserve action to: A) increase the interest rate paid on excess reserves. B) increase the discount rate. C) buy government securities in the open market. D) sell government securities in the open market.

Question

Quizplus · Accepted Answer

The Federal Reserve can increase aggregate demand by buying government securities in the open market. This will increase the money supply and lower interest rates, which will lead to increased investment spending and a shift in the aggregate demand curve to the right.

-Refer to the Above Diagrams, in Which the Numbers in Parentheses