The Federal Reserve and the federal government are pursuing different policy goals with respect to aggregate demand if, as the government raises spending to promote economic growth, the Fed sells government bonds on the open market.

Question

Quizplus · Accepted Answer

The government is increasing spending to boost aggregate demand, while the Fed's sale of government bonds reduces the money supply and could potentially decrease aggregate demand. Therefore, their goals are in conflict.

The Federal Reserve and the Federal Government Are Pursuing Different