If the Federal Reserve wanted to expand the money supply in order to increase output, it should
A) sell government bonds, which will increase the money supply; this will cause interest rates to fall and aggregate demand to rise.
B) buy government bonds, which will increase the money supply; this will cause interest rates to fall and aggregate demand to rise.
C) increase the discount rate, which will raise the market rate of interest; this will cause both costs and prices to rise.
D) decrease taxes, which will reduce costs and cause prices to fall.
Correct Answer:
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