If the Fed conducts open-market sales,the money supply
A)increases and aggregate demand shifts right.
B)increases and aggregate demand shifts left.
C)decreases and aggregate demand shifts right.
D)decreases and aggregate demand shifts left.

Question

Quizplus · Accepted Answer

When the Fed conducts open-market sales, it is selling government securities to banks and individuals, which decreases the amount of reserves that banks hold. As a result, banks have less money to lend, causing a decrease in the money supply. With a decrease in the money supply, the aggregate demand curve shifts left. Therefore, the best choice is D.

If the Fed Conducts Open-Market Sales,the Money Supply