Exhibit 20-4 Aggregate demand and supply model

-In Exhibit 20-4,which one of the following actions could the Fed use to shift the AD curve from AD₁ to AD₂?

Question

Exhibit 20-4 Aggregate demand and supply model
 
-In Exhibit 20-4,which one of the following actions could the Fed use to shift the AD curve from AD₁ to AD₂?

Quizplus · Accepted Answer

The Fed could use open market operations to buy government securities, which would increase the money supply and shift the AD curve to the right from AD₁ to AD₂. Increasing the legal reserve requirement, raising the discount rate, and printing currency would all decrease the money supply and shift the AD curve to the left, while lowering the federal funds rate would also increase the money supply but would not necessarily shift the AD curve.

Exhibit 20-4 Aggregate Demand and Supply Model