When the Fed sells bonds in the open market, in the product market (the aggregate demand- aggregate supply model),
A) real GDP will fall and the price level will rise.
B) real GDP and the price level will rise.
C) real GDP and the price level will fall.
D) real GDP will rise and the price level will fall.

Question

Quizplus · Accepted Answer

When the Fed sells bonds in the open market, it reduces the money supply in the economy, which leads to higher interest rates and decreased investment spending. As a result, aggregate demand shifts to the left, causing both real GDP and the price level to fall.

When the Fed Sells Bonds in the Open Market, in the Product