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Figure: The Money Supply and Aggregate Demand
-(Figure: The Money Supply and Aggregate Demand) Look at the figure The Money Supply and Aggregate Demand. If the Federal Reserve intended to encourage investment and expand the economy, it would _____ Treasury bills, _____ the money supply, and _____ interest rates. This is shown in panel _____.

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Figure: The Money Supply and Aggregate Demand 
-(Figure: The Money Supply and Aggregate Demand) Look at the figure The Money Supply and Aggregate Demand. If the Federal Reserve intended to encourage investment and expand the economy, it would _____ Treasury bills, _____ the money supply, and _____ interest rates. This is shown in panel _____.

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If the Federal Reserve wants to encourage investment and expand the economy, it would purchase Treasury bills, which increases the money supply, and lower interest rates, as shown in panel (a) of the figure. This is because purchasing Treasury bills injects money into the banking system, which makes banks more willing to lend and borrowers more willing to borrow, leading to an increase in investment and aggregate demand. Lowering interest rates makes borrowing cheaper, which also encourages investment and spending.

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