Refer to Figure 15.6.Which of the following Fed actions is most likely to decrease the aggregate demand curve from AD₂ to AD₁?

Question

Quizplus · Accepted Answer

Raising the federal funds rate would decrease aggregate demand by reducing the amount of borrowing and spending in the economy. This would cause a shift of the aggregate demand curve from AD₂ to AD₁, with a decrease in both output and price level. The other options - buying bonds, lowering the discount rate, and decreasing the reserve requirement - would all lead to an increase in aggregate demand.