Refer to Figure 18.2.The sale of bonds by the Fed in the open market will result in A)A decrease in the money supply and a move from AD₂ to AD₁. B)An increase in the money supply and a move from AD₁ to AD₂. C)A decrease in the money supply and a move from AS₂ to AS₁. D)An increase in the money supply and a move from AS₁ to AS₂.

Question

Quizplus · Accepted Answer

When the Fed sells bonds in the open market, it decreases the money supply as it takes money out of circulation. This results in a shift of the aggregate demand and supply curves to the left, moving from AD₂ to AD₁.