Figure 16.6
-Refer to Figure 16.6.In this figure,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 Reserve Bank of Australia use to move the economy to point C?

Question

Figure 16.6 
-Refer to Figure 16.6.In this figure,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 Reserve Bank of Australia use to move the economy to point C?

Quizplus · Accepted Answer

Selling financial securities, specifically government bonds, would decrease the money supply in the economy, which would lead to higher interest rates, lower investment, and decreased aggregate demand. This would shift the economy from point B to point C, where inflation is lower and output is closer to potential. Decreasing income taxes and increasing government spending would have a direct expansionary effect on the economy, but would likely lead to higher inflation and could move the economy above potential output, which is not desirable for the long-term health of the economy. Buying financial securities would increase the money supply and likely lead to higher inflation, which is not desirable in this case.

Figure 16.6 -Refer to Figure 16.6.In This Figure,suppose the Economy in Year