The Federal Reserve fights inflation via open market operations, the supply of loanable funds curve shifts____________ and the aggregate demand curve shifts ____________.

Question

Quizplus · Accepted Answer

When the Federal Reserve fights inflation via open market operations, it reduces the money supply by selling government securities. This reduces the amount of loanable funds available in the market, shifting the supply of loanable funds curve leftward. At the same time, reducing the money supply also leads to a decrease in aggregate demand, shifting the aggregate demand curve leftward. Therefore, the correct choice is A.

The Federal Reserve Fights Inflation Via Open Market Operations, the Supply