Suppose that the Federal Reserve is conducting an expansionary monetary policy. It will _____ Treasury bills on the open market, so that the money supply will _____, interest rates will _____, planned investment spending will _____, and the AD curve will shift to the _____.
A) buy; decrease; fall; fall; left
B) sell; decrease; rise; fall; left
C) buy; increase; fall; rise; right
D) sell; increase; rise; rise; left

Question

Quizplus · Accepted Answer

In an expansionary monetary policy, the Federal Reserve buys Treasury bills on the open market, increasing the money supply. This increase in the money supply will lower interest rates, making borrowing cheaper, which should encourage firms to invest and increase planned investment spending. As a result, the aggregate demand (AD) curve will shift to the right, as higher investment spending leads to an increase in overall demand in the economy.

Suppose That the Federal Reserve Is Conducting an Expansionary Monetary