Figure 11-5
-Refer to Figure 11-5. If the economy is at point c, the Federal Reserve can close the output gap by buying bonds. In the bond market,

Question

Figure 11-5 
-Refer to Figure 11-5. If the economy is at point c, the Federal Reserve can close the output gap by buying bonds. In the bond market,

Quizplus · Accepted Answer

When the Federal Reserve buys bonds, the demand for bonds increases, shifting the demand curve to the right. This leads to an increase in bond prices and a decrease in interest rates. Lower interest rates stimulate borrowing and investment, increasing aggregate demand and closing the output gap.

Figure 11-5 -Refer to Figure 11-5. If the Economy Is at Point