Exhibit 20-4 Aggregate demand and supply model

In Exhibit 20-4, which one of the following actions could the Fed use to shift the AD curve from AD₁ to AD₂?

Question

Exhibit 20-4 Aggregate demand and supply model In Exhibit 20-4, which one of the following actions could the Fed use to shift the AD curve from AD₁ to AD₂?

Quizplus · Accepted Answer

Buying government securities would increase the money supply and lower interest rates, leading to increased consumption and investment spending and shifting the AD curve to the right. Raising the legal reserve requirement, raising the discount rate, and increasing the federal funds rate would all decrease the money supply and increase interest rates, leading to lower consumption and investment spending and shifting the AD curve to the left.

Exhibit 20-4 Aggregate Demand and Supply Model