If the economy is at potential GDP and the Fed makes an open market sale of government securities,in the long run the aggregate ________ curve shifts ________ and the price level ________.
A) demand; rightward; rises
B) supply; leftward; rises
C) demand; leftward; falls
D) supply; leftward; falls

Question

Quizplus · Accepted Answer

An open market sale by the Fed decreases the money supply, leading to higher interest rates, which reduces investment and consumption, shifting the aggregate demand curve leftward and causing the price level to fall in the long run.

If the Economy Is at Potential GDP and the Fed