Figure 10-6

-Refer to Figure 10-6.If the Fed wants to encourage investment and expand the economy, it would conduct __________ monetary policy such as _______.The results of such a policy are represented in _______.

Question

Figure 10-6
 
-Refer to Figure 10-6.If the Fed wants to encourage investment and expand the economy, it would conduct __________ monetary policy such as _______.The results of such a policy are represented in _______.

Quizplus · Accepted Answer

In order to encourage investment and expand the economy, the Fed would conduct expansionary monetary policy, which involves increasing the money supply. This can be achieved through an open market purchase, which is when the Fed purchases government securities from banks and investors, increasing their reserves and enabling them to lend more. The results of this policy are represented in Panel (a), which shows an increase in the money supply and a decrease in interest rates. Therefore, the best choice is A, an expansionary monetary policy such as an open market purchase, represented in Panel (a).

Figure 10-6 -Refer to Figure 10-6.If the Fed Wants to Encourage Investment