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Figure: Monetary Policy I
-(Figure: Monetary Policy I) Refer to Figure: Monetary Policy I. If the economy is initially in equilibrium at E₂ and the central bank chooses to sell Treasury bills:

Question

Use the following to answer questions:
Figure: Monetary Policy I

-(Figure: Monetary Policy I) Refer to Figure: Monetary Policy I. If the economy is initially in equilibrium at E₂ and the central bank chooses to sell Treasury bills:

Quizplus · Accepted Answer

Selling Treasury bills is a contractionary monetary policy tool, which means it is used to decrease aggregate demand. This leads to a leftward shift of the aggregate demand curve from AD₂ to AD₁, causing a recessionary gap. Therefore, choice B is the correct answer. Choices A, C, and D are incorrect because they do not accurately reflect the impact of selling Treasury bills on the economy.

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