Refer to Figure 18.2.The sale of bonds by the Fed in the open market will result in A)A decrease in the money supply and a move from AD₂ to AD₁. B)An increase in the money supply and a move from AD₁ to AD₂. C)A decrease in the money supply and a move from AS₂ to AS₁. D)An increase in the money supply and a move from AS₁ to AS₂.

Question

Quizplus · Accepted Answer

Selling bonds in the open market reduces bank reserves, leading to a decrease in the money supply. This shift is reflected in the AD-AS model as a movement from AD₂ to AD₁, with a leftward shift of the AD curve. Therefore, the correct answer is A.