The Federal Reserve fights inflation via open market operations,the supply of loanable funds curve shifts ________ and the aggregate demand curve shifts ________.

Question

Quizplus · Accepted Answer

Open market operations involve the Federal Reserve buying or selling government bonds, which affects the money supply and interest rates. When the Fed wants to fight inflation, it will sell government bonds, which reduces the money supply and increases interest rates. This, in turn, shifts the supply of loanable funds curve leftward, as there is less money available to lend. Additionally, higher interest rates can reduce consumer and business spending, which shifts the aggregate demand curve leftward. Both of these shifts work to decrease inflationary pressures in the economy.

The Federal Reserve Fights Inflation Via Open Market Operations,the Supply