Figure 11-4 -Refer to Figure 11-4. Which of the following actions by the Fed could have caused the movement from AD₁ to AD₂ in Panel (a)? A) selling government bonds in the open market B) buying government bonds in the open market C) increasing the discount rate D) increasing the federal funds rate

Question

Quizplus · Accepted Answer

Buying government bonds in the open market increases the money supply, shifting the aggregate demand curve to the right from ADS1 to ADS2. This leads to an increase in real GDP from U1 to U2 and an increase in the price level from P1 to P2.