When the Fed buys 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 buys bonds, it increases the money supply, which lowers interest rates, stimulates investment and consumption, and shifts the aggregate demand curve to the right, leading to an increase in both real GDP and the price level.

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