Exhibit 16-4
-In Exhibit 16-4, the Fed can return the economy to its potential output by
A)selling US Treasury securities inthe open market
B)lowering the discount rate
C)by lowering the reserve requirenment
D)buying US Treasury securities in the open market
E)printing money

Question

Exhibit 16-4 
-In Exhibit 16-4, the Fed can return the economy to its potential output by
A)selling US Treasury securities inthe open market 
B)lowering the discount rate 
C)by lowering the reserve requirenment 
D)buying US Treasury securities in the open market 
E)printing money

Quizplus · Accepted Answer

Buying US Treasury securities in the open market increases the money supply and lowers interest rates, which encourages borrowing and spending, thus stimulating aggregate demand and returning the economy to its potential output.

Exhibit 16-4 -In Exhibit 16-4, the Fed Can Return the Economy to the Economy