-In the above figure, the economy experiences an increase in aggregate demand so that the aggregate demand curve shifts from AD₀to AD₂. If the Fed wants to offset this change, it would____________

Question

Quizplus · Accepted Answer

To offset an increase in aggregate demand, the Fed would sell government securities on the open market, which decreases the money supply and raises interest rates, thereby reducing aggregate demand.

-In the Above Figure, the Economy Experiences an Increase in Aggregate