Which of the following would tend to increase AD?
A)a commercial bank using excess reserves to extend a loan to a customer
B)a commercial bank purchasing U.S.securities from the Fed as an investment
C)an increase in reserve requirements
D)an increase in the discount rate

Question

Which of the following would tend to increase AD?
A)​a commercial bank using excess reserves to extend a loan to a customer
B)​a commercial bank purchasing U.S.securities from the Fed as an investment
C)​an increase in reserve requirements
D)​an increase in the discount rate

Quizplus · Accepted Answer

When a commercial bank uses excess reserves to extend a loan to a customer, it increases the money supply, which leads to an increase in AD. This is because it provides additional funds that consumers and businesses can spend and invest.

Answer: B
 When a commercial bank purchases U.S. securities from the Fed as an investment, it does not directly affect AD. However, it can indirectly influence AD if it increases the liquidity of banks, which can lead to more lending and investment.

Answer: None of the choices
 An increase in reserve requirements reduces the amount of money that banks can lend, thus decreasing the money supply and leading to a decrease in AD. An increase in the discount rate also makes it more expensive for banks to borrow money, which reduces their lending and investment, and therefore decreases AD.

Which of the Following Would Tend to Increase AD