To stimulate aggregate demand, the Fed could
A) Lower its policy interest rate
B) Use forward guidance to alter the path of the expected policy rate
C) Purchase long-term benchmark securities to compress the term premium
D) All of the above

Question

Quizplus · Accepted Answer

All of the options listed are tools the Federal Reserve can use to stimulate aggregate demand. Lowering the policy interest rate makes borrowing cheaper, encouraging spending and investment. Forward guidance can shape expectations about future monetary policy, influencing economic decisions today. Purchasing long-term securities aims to lower long-term interest rates, further encouraging borrowing and investment.

To Stimulate Aggregate Demand, the Fed Could