Figure 26-10

-Refer to Figure 26-10.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 26-10
 
-Refer to Figure 26-10.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

Buying Treasury bills is a form of open market operations, which involves the Federal Reserve buying government securities to increase the money supply in the economy. This could stimulate economic activity and shift the economy from point B to point C. Decreasing income taxes would increase aggregate demand, but it may not be enough to shift the economy to point C. Increasing the required-reserve ratio would reduce the money supply, which could cause a contraction in the economy and shift it to point A. Selling Treasury bills would also reduce the money supply and would likely cause a contraction in the economy. Therefore, the best choice to move the economy to point C would be to buy Treasury bills.

Figure 26-10 -Refer to Figure 26-10.In the Figure Above,suppose the Economy in Above,suppose