When aggregate demand decreases,the Fed will want to use its policy tools to:
A) keep aggregate demand lower until wages catch up.
B) quickly bring aggregate demand back to its original position.
C) push aggregate demand higher than it was originally to make up for lost growth potential.
D) shift aggregate supply to left to balance with lower demand.

Question

Quizplus · Accepted Answer

The Fed's goal is to stabilize the economy and maintain full employment. If aggregate demand decreases, it could result in a recession or slowdown in growth. Therefore, the Fed will want to use its policy tools, such as adjusting interest rates or implementing quantitative easing, to quickly bring aggregate demand back to its original position to stabilize the economy and prevent a prolonged downturn. Keeping aggregate demand lower or pushing it higher than its original position may not be effective or appropriate for the situation. Shifting aggregate supply to the left would not be an appropriate response to a decrease in aggregate demand.

When Aggregate Demand Decreases,the Fed Will Want to Use Its