Use the Following to Answer Questions

question 1

Multiple Choice

Use the following to answer questions .
Exhibit: Effects of Monetary Policy
-(Exhibit: Effects of Monetary Policy) If the Fed acts to close the output gap in Panel (a) , it would

• A) sell government bonds which will lead to the shift in demand for bonds in Panel (b). This action will raise the price of bonds and lower the interest rate.
• B) buy government bonds which will lead to the shift in demand for bonds in Panel (b). This action will raise the price of bonds and increase the interest rate.
• C) buy government bonds which will lead to the shift in demand for bonds in Panel (b). This action will raise the price of bonds and lower the interest rate.
• D) sell government bonds which will lead to the shift in demand for bonds in Panel (b). This action will raise the price of bonds and increase the interest rate.

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