Figure 17-15

-Refer to Figure 17-15.In the figure above,suppose the economy in Year 1 is at point A and expected in Year 2 to be at point B.Which of the following policies could the Federal Reserve use to move the economy to point C?

Question

Figure 17-15
 
-Refer to Figure 17-15.In the figure above,suppose the economy in Year 1 is at point A and expected in Year 2 to be at point B.Which of the following policies could the Federal Reserve use to move the economy to point C?

Quizplus · Accepted Answer

The Federal Reserve could use open market operations, such as buying Treasury bills, to increase the money supply and stimulate aggregate demand, thus moving the economy from point B to point C. Decreasing income taxes or increasing the required-reserve ratio would not have a direct impact on the money supply or aggregate demand in the short run. Selling Treasury bills would decrease the money supply and further reduce aggregate demand, moving the economy away from point C.

Figure 17-15 -Refer to Figure 17-15.In the Figure Above,suppose the Economy in Above,suppose