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When a central bank does open market purchases, " aggregate supply shifts in aggregate supply shifts...

When a central bank does open market purchases, "

aggregate supply shifts in

aggregate supply shifts out

aggregate demand shifts in

aggregate demand shifts out
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Answer #1

The correct answer is 'Option D'.

When the central bank engage in an open market purchase of government securities then there is an increase in the supply of money in the market. An increase in money supply increases the amount available for borrowing purposes which drives down the interest rate. The investment demand increases at a lower interest rate which increases the aggregate demand and the aggregate demand curve shifts outward. Therefore, the correct answer is 'Option D'.

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