Question

Suppose the economy is in short-run equilibrium above potential GDP, the unemployment rate is very low, and wages and prices are rising. Using the static AD-AS model, the correct Fed policy to move the economy from the short- run equilibrium back to long-run equilibrium would be

an open market purchase of Treasury securities (bonds).
a decrease in reserve requirements.
an open market sale of Treasury securities (bonds).
a increase in taxes.

Answer 1

an open market sale of Treasury securities (bonds).

Step-by-step explanation:

An open market sale will decrease the money supply so aggregate demand decreases and shifts to the left.