Question

Briefly describe the effect of the FED's selling Treasury Bonds would most likely have on:

1) The movement of the aggregate demand curve

2) The movement of the supply curve of money

3) Interest Rate

4) Inflation

Answer 1

Answer - The selling of the treasury bonds is a part of the contractionary monetary policy. This will reduce the components of the AD.

Thus as a result of this , the AD will decrease and the leftward shift will be seen in AD.

The money supply will decrease because the fed will squeez out the money from the economy by selling them bonds in open market and taking money in return

Due to lesser supply of money , the supply curve will shift left and the interest rates will rise

The fall in the supply of money , reduces the demand and thus decreases the rate of inflation.