Figure 15-9
-Refer to Figure 15-9.In the figure above suppose the economy is initially at point A.The movement of the economy to point B as shown in the graph illustrates the effect of which of the following policy actions by the Federal Reserve?
A)a decrease in income taxes
B)an increase in the required reserve ratio
C)an open market purchase of Treasury bills
D)an open market sale of Treasury bills

Question

Figure 15-9 
-Refer to Figure 15-9.In the figure above suppose the economy is initially at point A.The movement of the economy to point B as shown in the graph illustrates the effect of which of the following policy actions by the Federal Reserve?
A)a decrease in income taxes 
B)an increase in the required reserve ratio 
C)an open market purchase of Treasury bills 
D)an open market sale of Treasury bills

Quizplus · Accepted Answer

The movement from point A to point B indicates an increase in both real GDP and the price level, which is consistent with expansionary monetary policy. Among the listed options, an open market purchase of Treasury bills is the only expansionary monetary policy action carried out by the Federal Reserve. Therefore, the correct answer is C. A decrease in income taxes is a fiscal policy action and would not be represented by a movement along the AD curve. An increase in the required reserve ratio and an open market sale of Treasury bills are contractionary monetary policy actions and would shift the AD curve to the left, not to the right as shown in the figure.

Figure 15-9 -Refer to Figure 15-9.In the Figure Above Suppose the Economy