If the Fed wants to increase AD,it should do which of the following?

Question

Quizplus · Accepted Answer

Conducting open market purchases increases the money supply in the economy, leading to lower interest rates and increased borrowing and spending by consumers and businesses, ultimately increasing aggregate demand.

The other options listed would have contractionary effects on the economy, reducing aggregate demand. Raising the discount rate would make borrowing more expensive for banks and reduce the amount of money in circulation. Similarly, raising the required reserve ratio would require banks to hold onto more money and reduce their ability to lend. Lowering capital gains tax rates would have an uncertain impact on aggregate demand and would likely benefit only a small portion of the population, which would not have a significant impact on overall spending.

If the Fed Wants to Increase AD,it Should Do Which