Question

If the Fed conducts open-market purchases, the money supply A. decreases and aggregate demand shifts right. B. increases and aggregate demand shifts right. C. decreases and aggregate demand shifts left. D. increases and aggregate demand shifts left.

Answer 1

If the Fed conducts open-market purchases, the money supply increases and aggregate demand shifts right.

Answer: Option B

Explanation:

With the Fed conducting an open market purchase, the people will sell of the securities that they possess. In return they will get money from the fed for the purchases that it makes. With the increase in the supply of money in the economy, there will be more demand by the people in the economy.

Therefore the aggregate demand curve will shift to the right direction showing more demand of the goods and services by the people in the economy.