-In the above figure, if the economy is initially at an equilibrium output at point A and the interest rate is r1, then an open market purchase of bonds by the Fed will

Question

Quizplus · Accepted Answer

An open market purchase of bonds by the Federal Reserve increases the money supply, which typically leads to lower interest rates. Lower interest rates make borrowing cheaper, encouraging investment (I2) and shifting the aggregate demand (AD) curve to the right, leading to an increase in output.

-In the Above Figure, If the Economy Is Initially at an Equilibrium