Use the figure below to answer the following question.

Figure 30.3.3
-Refer to Figure 30.3.3. The figure shows the economy of Freezone. Potential GDP is $350 billion. To return the economy to full employment, the central bank can ________ the overnight rate and ________ securities.
A)raise; sell
B)lower; sell
C)lower; buy
D)raise; buy
E)lower; not change its holdings of

Question

Use the figure below to answer the following question.
  
Figure 30.3.3
-Refer to Figure 30.3.3. The figure shows the economy of Freezone. Potential GDP is $350 billion. To return the economy to full employment, the central bank can ________ the overnight rate and ________ securities.
A)raise; sell 
B)lower; sell 
C)lower; buy 
D)raise; buy 
E)lower; not change its holdings of

Quizplus · Accepted Answer

The central bank can raise the overnight rate to reduce the money supply, which will increase interest rates and reduce aggregate demand. This will move the economy back towards full employment. The central bank can also sell securities to reduce the money supply.

Use the Figure Below to Answer the Following Question