-In the Above Figure, If the Economy Is Initially at an Equilibrium

question 147

Multiple Choice

-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) cause interest rates to increase and output to decline.
• B) cause interest rates to decline to r2, investment to increase to I2, and the AD curve to shift upward to the right.
• C) cause interest rates to decline to r2, investment to decline, and aggregate demand to shift inward to the left.
• D) not have any impact on short- or long-run equilibrium real Gross Domestic Product (GD

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Definitions:

Declining Real Estate

A situation where the value and demand for real estate decrease over time, often due to economic factors or oversupply.

Bankers Trust

was a historic American banking organization that was absorbed by Deutsche Bank in 1999, known for its role in financial services and investment banking.

Assets

Economic resources or owned items of value that an individual, corporation, or country possesses, expected to provide future benefits.

Money Supply

The overall pool of money within an economy at a certain time, including all forms of cash, coinage, and funds in checking and savings accounts.