The central bank of Cobra sells securities in an open market operation. In the short run, aggregate demand__________ , real GDP__________ , and the price level __________.

Question

Quizplus · Accepted Answer

When the central bank sells securities in an open market operation, it decreases the money supply in the economy, which leads to an increase in interest rates. Higher interest rates discourage consumer and business borrowing and spending, which leads to a decrease in aggregate demand. As a result, real GDP decreases and the price level falls in the short run.

The Central Bank of Cobra Sells Securities in an Open