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) None of these answers is correct.

Question

Quizplus · Accepted Answer

When aggregate demand decreases, the Fed will want to use its policy tools to quickly bring aggregate demand back to its original position. This is because prolonged periods of low aggregate demand can lead to recession, high unemployment, and decreased economic growth. The Fed's policy tools, such as adjusting interest rates and open market operations, are used to stimulate demand and bring the economy back to full employment. Therefore, the best choice is B.

When Aggregate Demand Decreases, the Fed Will Want to Use