Use the Following to Answer Questions

Multiple Choice

Use the following to answer questions .
Exhibit: The Money Supply and Aggregate Demand
-(Exhibit: The Money Supply and Aggregate Demand) If the economy is experiencing an inflationary gap, the Fed would

A) buy government bonds, which would increase the money supply and decrease interest rates. The results of such a policy are represented in Panel (a) .
B) sell government bonds, which would decrease the money supply and increase interest rates. The results of such a policy are represented in Panel (b) .
C) buy government bonds, which would decrease the money supply and increase interest rates. The results of such a policy are represented in Panel (b) .
D) sell government bonds, which would increase the money supply and increase interest rates. The results of such a policy are represented in Panel (b) .