Suppose the aggregate supply curve for the economy is upward sloping. Then, other things being equal, an open market purchase by the Federal Reserve will raise both the equilibrium price level and equilibrium national income.

Question

Quizplus · Accepted Answer

An open market purchase by the Federal Reserve increases the money supply, which shifts the aggregate demand curve rightward. Since the aggregate supply curve is upward sloping, the increase in aggregate demand leads to higher equilibrium price level and output level (national income).

Suppose the Aggregate Supply Curve for the Economy Is Upward