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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 Federal Reserve intended to encourage investment and expand the economy, it would _____ Treasury bills, _____ the money supply, and _____ interest rates. This is shown in panel _____.
A) buy; increase; lower; (a)
B) sell; increase; lower; (b)
C) buy; decrease; lower; (a)
D) buy; increase; raise; (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 Federal Reserve intended to encourage investment and expand the economy, it would _____ Treasury bills, _____ the money supply, and _____ interest rates. This is shown in panel _____.
A) buy; increase; lower; (a) 
B) sell; increase; lower; (b) 
C) buy; decrease; lower; (a) 
D) buy; increase; raise; (a)

Quizplus · Accepted Answer

If the Federal Reserve intended to encourage investment and expand the economy, it would buy Treasury bills to increase the money supply and lower interest rates. This is shown in panel (a) of the figure, where an increase in the money supply shifts the aggregate demand curve to the right, resulting in higher output and lower interest rates.

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