Exhibit 20-4  Aggregate Demand and Supply Model in Exhibit 20-4

question 94

Multiple Choice

Exhibit 20-4  Aggregate demand and supply model In Exhibit 20-4, which one of the following actions could the Fed use to shift the AD curve from AD₃ to AD₂?

• A) Lower the legal reserve requirement.
• B) Lower the discount rate.
• C) Lower the federal funds rate.
• D) Raise the discount rate.
• E) Buy government securities.

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Definitions:

Reserve Requirement

A regulation that sets the minimum reserves each bank must hold to customer deposits and notes, intended to ensure bank liquidity and financial stability.

Excess Reserves

Funds held by banks over and above the legally mandated requirements to back deposits.

Demand Deposits

Bank accounts from which deposited funds can be withdrawn at any time without any notice to the bank, such as checking accounts.

Federal Reserve Board

The governing body of the Federal Reserve System, responsible for overseeing the United States' central bank policies, including regulating banks and setting interest rates.