Suppose there were a large decline in net exports.If the Fed wanted to stabilize output,it could
A)buy bonds to raise interest rates.
B)buy bonds to lower interest rates.
C)sell bonds to raise interest rates.
D)sell bonds to lower interest rates.

Question

Quizplus · Accepted Answer

By buying bonds, the Fed increases the money supply, which lowers interest rates. Lower interest rates can stimulate investment and consumption, offsetting the decline in net exports and stabilizing output.

Suppose There Were a Large Decline in Net Exports