Figure 11-4

Multiple Choice

Figure 11-4
-Refer to Figure 11-4. If the Fed acts to close the output gap in Panel (a) , it would

A) sell government bonds which will lead to the shift in demand for bonds in Panel (b) . This action will raise the price of bonds and lower the interest rate.
B) buy government bonds which will lead to the shift in demand for bonds in Panel (b) . This action will raise the price of bonds and increase the interest rate.
C) buy government bonds which will lead to the shift in demand for bonds in Panel (b) . This action will raise the price of bonds and lower the interest rate.
D) sell government bonds which will lead to the shift in demand for bonds in Panel (b) . This action will raise the price of bonds and increase the interest rate.