1) Suppose there is an increase in aggregate demand. If the Fed wants to stabilize output it could buy bonds. However these purchases move the price level further from its original level. sell bonds. However these sales move the price level farther from its original level. sell bonds. These sales also move the price level closer to its original level. buy bonds. These purchases also move the price level closer to its original level.
1) Suppose there is an increase in aggregate demand. If the Fed wants to stabilize output it could buy bonds. However these purchases move the price level further from its original level. sell bonds. However these sales move the price level farther from its original level. sell bonds. These sales also move the price level closer to its original level. buy bonds. These purchases also move the price level closer to its original level.
Chapter15: Monetary Theory And Policy
Section: Chapter Questions
Problem 2.5P
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