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Figure: The Money Supply and Aggregate Demand
-(Figure: The Money Supply and Aggregate Demand) Refer to Figure: The Money Supply and Aggregate Demand. If the economy is in a recessionary gap, the Federal Reserve will _____ Treasury bills, which will _____ the money supply and _____ interest rates. This is shown in panel _____.
A) sell; decrease; raise; (b)
B) buy; decrease; lower; (a)
C) buy; increase; lower; (a)
D) sell; increase; lower; (a)

Question

Use the following to answer questions:
Figure: The Money Supply and Aggregate Demand 
-(Figure: The Money Supply and Aggregate Demand) Refer to Figure: The Money Supply and Aggregate Demand. If the economy is in a recessionary gap, the Federal Reserve will _____ Treasury bills, which will _____ the money supply and _____ interest rates. This is shown in panel _____.
A) sell; decrease; raise; (b) 
B) buy; decrease; lower; (a) 
C) buy; increase; lower; (a) 
D) sell; increase; lower; (a)

Quizplus · Accepted Answer

The Federal Reserve will buy Treasury bills to increase the money supply and lower interest rates, helping to close a recessionary gap. This is shown in panel (a) as it illustrates the expansionary monetary policy effects.

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