Using aggregate supply & demand curves drawn according to the Keynesian view, wh

Question

Using aggregate supply & demand curves drawn according to the Keynesian view, which of the following will occur if the Fed buys securities in the open market and the economy is below full employment?

a. Aggregate demand will shift to the left and unemployment rate will rise

b. Aggregate demand will shift to the right and the unemployment rate wil lfall

c. Aggregate demand will shift to the left and the price level will remain unchanged.

d. Aggregate demand will shift to the right and the price level will fall.

Explanation / Answer

b. Aggregate demand will shift to the right and the unemployment rate wil lfall

As, Fed buys securities in the open market, the supply of money in the economy increases and hence the amount of Investment, which shifts the AD to the right and output increases , and hence unemploynmment decreases.

If you don't understand anything, then comment, I will revert back on the same.

And If you liked the answer then please do review the same. Thanks :)

Related Questions

Navigate

• Browse (All)
• Browse U
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.