-Look at the above figure. Suppose the economy was initially in equilibrium at point A. What point would represent the short-run equilibrium if the Fed makes an open market purchase of bonds?

Question

Quizplus · Accepted Answer

An open market purchase of bonds increases the money supply, which leads to a decrease in interest rates. This, in turn, leads to an increase in aggregate demand, which shifts the AD curve to the right. The new short-run equilibrium is at point B, where the AD curve intersects the SRAS curve.

-Look at the Above Figure