-In the above figure, suppose that the economy is at point D. Which of the following occurs as a result of an open market purchase of government securities by the Fed?

Question

Quizplus · Accepted Answer

An open market purchase of government securities by the Fed increases the money supply, which leads to a decrease in the real interest rate. This decrease in the real interest rate makes borrowing cheaper, encouraging investment. Additionally, a lower interest rate can lead to a depreciation of the domestic currency, making exports more competitive abroad, hence increasing exports. Therefore, all of the mentioned effects occur.

-In the Above Figure, Suppose That the Economy Is at Point