Refer to Figure 1. The sale of bonds by a central bank using open market operations will result in A. A decrease in the money supply and a move from AD2 to AD1.B. An increase in the money supply and a move from AD1 to AD2.C. A decrease in the money supply and a move from AS2 to AS1.D. An increase in the money supply and a move from AS1 to AS2.
A. A decrease in the money supply and a move from AD2 to AD1.
The correct answer is A.
Open market operations refer to the buying and selling of government bonds on the open market by a central bank. When a central bank sells bonds, it is essentially taking money out of circulation and reducing the money supply. This is because the buyers of the bonds are using their money to purchase them, thus reducing the amount of money available in the economy.
A decrease in the money supply will cause a contractionary effect on the economy, which will result in a move from AD2 to AD1. This is because there will be less money available for consumers and firms to spend, causing a decrease in aggregate demand.
Therefore, selling bonds will cause a decrease in the money supply and a move from AD2 to AD1. Answer A is correct.
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