Suppose the economy is operating below its full employment level. The Fed

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The best choice is D because the Fed can use expansionary monetary policy to increase the money supply, which will increase aggregate demand and ultimately move the economy toward full employment. This is because an increase in the money supply leads to lower interest rates, which increases investment and consumption spending, and also leads to a weaker exchange rate, which makes exports more competitive. These together increase aggregate demand in the economy. The indirect effect also comes into play because given the short-term interest rates at their lowest, the Fed has tools such as quantitative easing or forward guidance to provide additional stimulus.

Suppose the Economy Is Operating Below Its Full Employment Level