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-The Economy Is at the Equilibrium Shown as Point a in the Above

Question 31

Multiple Choice

  -The economy is at the equilibrium shown as point a in the above figure. To restore the economy to potential GDP, the Reserve Bank should A)  sell government securities to lower the cash rate and thereby decrease aggregate demand. B)  buy government securities to raise the cash rate and thereby decrease aggregate demand. C)  buy government securities to raise the cash rate and thereby increase aggregate supply. D)  sell government securities to raise the cash rate and thereby increase aggregate demand. E)  buy government securities to lower the cash rate and thereby increase aggregate demand.
-The economy is at the equilibrium shown as point a in the above figure. To restore the economy to potential GDP, the Reserve Bank should


A) sell government securities to lower the cash rate and thereby decrease aggregate demand.
B) buy government securities to raise the cash rate and thereby decrease aggregate demand.
C) buy government securities to raise the cash rate and thereby increase aggregate supply.
D) sell government securities to raise the cash rate and thereby increase aggregate demand.
E) buy government securities to lower the cash rate and thereby increase aggregate demand.

Correct Answer:

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