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
A) not have any impact on short- or long-run equilibrium real Gross Domestic Product (GDP).
B) cause interest rates to decline to r2, investment to decline, and aggregate demand to shift inward to the left.
C) cause interest rates to increase and output to decline.
D) cause interest rates to decline to r2, investment to increase to I2, and the AD curve to shift upward to the right.
D
You might also like to view...
Refer to Figure 29-1. The depreciation of the euro is represented as a movement from
A) C to D. B) B to C. C) B to A. D) D to A.
If a tax system is progressive, then
A) the average and the marginal tax rates are equal. B) the marginal tax rate is greater than the average tax rate as income rises. C) the marginal tax rate is lower than the average tax rate as income rises. D) the average tax rate is constant, but the dollar amount paid in taxes increases as income increases.