If the Fed conducts an open market purchase of bonds,which of the following will happen?
A) The interest rate will decrease,the aggregate expenditure line will shift upward,and the aggregate demand curve will shift leftward.
B) The interest rate will increase,the aggregate expenditure line will shift upward,and the aggregate demand curve will shift rightward.
C) The interest rate will decrease,the aggregate expenditure line will shift upward,and the aggregate demand curve will shift rightward.
D) The interest rate will decrease,the aggregate expenditure line will shift downward,and the aggregate demand curve will shift rightward.
E) The interest rate will increase,the aggregate expenditure line will shift downward,and the aggregate demand curve will shift leftward.

Question

Quizplus · Accepted Answer

When the Fed conducts an open market purchase of bonds, it increases the money supply. This leads to a decrease in interest rates, which in turn encourages people to borrow more and spend more. This increases aggregate expenditure and shifts the aggregate expenditure line upward. Additionally, the lower interest rates make investment more attractive, leading to an increase in aggregate demand. Therefore, the aggregate demand curve shifts rightward. So, the correct option is C.

If the Fed Conducts an Open Market Purchase of Bonds,which