If the Fed conducts an open market sale 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 rightward
B) The interest rate will decrease,the aggregate expenditure line will shift downward and the aggregate demand curve will shift rightward
C) The interest rate will increase,the aggregate expenditure line will shift downward and the aggregate demand curve will shift leftward
D) The interest rate will decrease,the aggregate expenditure line will shift upward and the aggregate demand curve will shift leftward
E) The interest rate will increase,the aggregate expenditure line will shift downward and the aggregate demand curve will shift rightward.

Question

Quizplus · Accepted Answer

When the Fed conducts an open market sale of bonds, it decreases the money supply in the economy, which increases the interest rate. This increase in interest rate leads to a decrease in investment spending, which shifts the aggregate expenditure line downward. Additionally, the decrease in investment spending will lead to a decrease in aggregate demand, causing the aggregate demand curve to shift leftward. Therefore, option C is the correct answer.

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