Question

For a country whose banking system has limited reserves, an open-market operation by the country's central bank to

reduce the unemployment rate would be to
(A) sell bonds to decrease the interest rate and to increase aggregate demand
(B) sell bonds to increase the interest rate and to decrease aggregate demand
(C) sell bonds to increase the interest rate and to increase investment
(D) buy bonds to decrease the interest rate and to decrease aggregate demand
(E) buy bonds to decrease the interest rate and to increase aggregate demand

Answer 1

An open-market operation by a country's central bank to reduce the unemployment rate would be to buy bonds to decrease the interest rate and to increase aggregate demand. Therefore, the correct option is (E).