Figure 26-15
-Refer to Figure 26-15. In the figure above, suppose the economy in Year 1 is at point A and expected in Year 2 to be at point B. Which of the following policies could the Federal Reserve use to move the economy to point C?
A) decrease income taxes
B) increase the required-reserve ratio
C) buy Treasury bills
D) sell Treasury bills

Question

Figure 26-15 
-Refer to Figure 26-15. In the figure above, suppose the economy in Year 1 is at point A and expected in Year 2 to be at point B. Which of the following policies could the Federal Reserve use to move the economy to point C?
A) decrease income taxes 
B) increase the required-reserve ratio 
C) buy Treasury bills 
D) sell Treasury bills

Quizplus · Accepted Answer

Buying Treasury bills would increase the money supply, leading to an increase in aggregate demand, which could shift the economy from point B to point C. Decreasing income taxes and increasing the required-reserve ratio would have either no effect on the money supply or a contractionary effect, which would move the economy away from point C. Selling Treasury bills would have a contractionary effect on the money supply, which would also move the economy away from point C.

Figure 26-15 -Refer to Figure 26-15. in the Figure Above, Suppose the Above