Using aggregate supply and demand curves drawn according to the Keynesian view,which of the following will occur if the Fed buys bonds in the open market and the economy is below full employment?
A) Aggregate demand will shift to the left and the unemployment rate will rise.
B) Aggregate demand will shift to the right and the unemployment rate will fall.
C) Aggregate demand will shift to the left and the price level will remain unchanged.
D) Aggregate demand will shift to the right and the price level will fall.

Question

Quizplus · Accepted Answer

According to the Keynesian view, if the Fed buys bonds in the open market, it increases the money supply, which leads to a shift in aggregate demand to the right. This shift increases both output and employment, which moves the economy toward full employment. Therefore, aggregate demand will shift to the right, and the unemployment rate will fall.

Using Aggregate Supply and Demand Curves Drawn According to the Keynesian