Figure 14-5
-Refer to Figure 14-5. The economy is in short-run equilibrium. If policymakers want to use monetary policy to improve economic performance, they should

Question

Figure 14-5 
-Refer to Figure 14-5. The economy is in short-run equilibrium. If policymakers want to use monetary policy to improve economic performance, they should

Quizplus · Accepted Answer

Selling bonds will decrease the money supply, increase interest rates, and decrease investment and aggregate demand, which will help to cool down the economy and reduce the inflationary pressures. Buying bonds will increase the money supply, decrease interest rates, increase investment and aggregate demand, and exacerbate the inflationary pressures. Buying bonds to reduce short run aggregate supply is not an effective or conventional tool of monetary policy.

Figure 14-5 -Refer to Figure 14-5. the Economy Is in Short-Run Equilibrium