Use the following to answer questions .
Exhibit: Economic Adjustments
-(Exhibit: Economic Adjustments) If the economy is at point b, the Federal Reserve can close the output gap by selling bonds. In the bond market,

Question

Use the following to answer questions .
Exhibit: Economic Adjustments 
-(Exhibit: Economic Adjustments) If the economy is at point b, the Federal Reserve can close the output gap by selling bonds. In the bond market,

Quizplus · Accepted Answer

Selling bonds means an increase in the supply of bonds. This will shift the supply curve of bonds to the right, resulting in a decrease in bond prices and an increase in interest rates. As a result, investment spending will decrease, and AD will decrease, leading to a decrease in output and a decrease in the output gap.

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