Figure 11-1
-Refer to Figure 11-1. If the Fed wants to achieve the results shown in Panel (a), it should
A) raise the discount rate.
B) increase reserve requirements.
C) sell government bonds in the open market.
D) buy government bonds in the open market.

Question

Figure 11-1 
-Refer to Figure 11-1. If the Fed wants to achieve the results shown in Panel (a), it should
A) raise the discount rate. 
B) increase reserve requirements. 
C) sell government bonds in the open market. 
D) buy government bonds in the open market.

Quizplus · Accepted Answer

Buying government bonds in the open market increases the money supply, which can lead to lower interest rates and stimulate economic activity, achieving the results shown in Panel (a).