If the stock market booms,then
A)aggregate demand increases,which the Fed could offset by purchasing bonds.
B)aggregate supply increases,which the Fed could offset by selling bonds.
C)aggregate demand increases,which the Fed could offset by selling bonds.
D)aggregate supply increases,which the Fed could offset by purchasing the money supply.

Question

Quizplus · Accepted Answer

When the stock market booms, investors have more confidence and optimism about the economy, which leads to increased consumer and business spending. This, in turn, leads to an increase in aggregate demand. To prevent inflation from occurring due to this increase in demand, the Federal Reserve could sell bonds to decrease the money supply and increase interest rates, thereby reducing aggregate demand.

If the Stock Market Booms,then