Refer to Figure 15.6.Which of the following Fed actions is most likely to decrease the aggregate demand curve from AD₂ to AD₁?

Question

Quizplus · Accepted Answer

Raising the federal funds rate would make borrowing more expensive for banks, which in turn would increase interest rates for consumers and businesses. This would decrease their willingness to borrow and spend, leading to a decrease in aggregate demand. Buying bonds in the open market, lowering the discount rate, and decreasing the reserve requirement would all increase the money supply and stimulate spending, leading to an increase in aggregate demand.