- Refer to the above diagrams, in which the numbers in parentheses near the AD₁, AD₂, and AD₃ labels indicate the level of investment spending associated with each curve. All figures are in billions. The economy is at point Z on the investment demand curve. Given these conditions, what policy should the monetary authorities pursue to achieve a noninflationary full-employment level of real GDP (Q_f) _?

Question

- Refer to the above diagrams, in which the numbers in parentheses near the AD<sub>1</sub>, AD<sub>2</sub>, and AD<sub>3</sub> labels indicate the level of investment spending associated with each curve. All figures are in billions. The economy is at point Z on the investment demand curve. Given these conditions, what policy should the monetary authorities pursue to achieve a noninflationary full-employment level of real GDP (Q<sub>f</sub>) <sub>?</sub> A) Decrease the reserve ratio. B) Decrease the discount rate. C) Sell government securities in the open market. D) Make no change in monetary policy.

Quizplus · Accepted Answer

Selling government securities in the open market will decrease the money supply, which can help reduce inflationary pressures and stabilize the economy at a noninflationary full-employment level of real GDP.

- Refer to the Above Diagrams, in Which the Numbers