Figure 15-14
-Refer to Figure 15-14.In the figure above,suppose the economy in Year 1 is at point A and is expected in Year 2 to be at point B.Which of the following policies could the Federal Reserve use to move the economy to point C?
A)decrease income taxes
B)increase the required-reserve ratio
C)buy Treasury bills
D)sell Treasury bills

Question

Figure 15-14 
-Refer to Figure 15-14.In the figure above,suppose the economy in Year 1 is at point A and is expected in Year 2 to be at point B.Which of the following policies could the Federal Reserve use to move the economy to point C?
A)decrease income taxes 
B)increase the required-reserve ratio 
C)buy Treasury bills 
D)sell Treasury bills

Quizplus · Accepted Answer

Buying Treasury bills is a form of expansionary monetary policy that increases the money supply and lowers interest rates, which can stimulate borrowing and spending, and ultimately shift the economy from point B to point C. Decreasing income taxes would also stimulate spending, but it is a fiscal policy and not within the purview of the Federal Reserve. Increasing the required-reserve ratio and selling Treasury bills are both contractionary monetary policies that would reduce the money supply and increase interest rates, which would be counterproductive to moving the economy to point C.

Figure 15-14 -Refer to Figure 15-14.In the Figure Above,suppose the Economy in the Economy