-In the above figure, the economy experiences an increase in aggregate demand so that the aggregate demand curve shifts from AD? to AD?. If the Fed wants to offset this change, it would ________.

Question

Quizplus · Accepted Answer

To offset an increase in aggregate demand and stabilize the economy, the Federal Reserve would sell government securities on the open market. This action reduces the money supply, increases interest rates, and consequently dampens spending and investment, which helps to prevent inflationary pressures that might arise from the increased aggregate demand.

-In the Above Figure, the Economy Experiences an Increase in Aggregate