Supply increases and aggregate demand shifts right.
The Federal Reserve engages in open market activities, which involve purchasing and selling of government bonds.
When the Federal Reserve purchases a bond from a bank, that bank gains access to funds that it can use to make loans.
There will be more money available. A purchase made on the free market contributes to the economy.
A central bank can increase or decrease the number of reserves in the banking system and therefore affect the nation's money supply by buying or selling bonds, bills, and other financial instruments on the open market.
When the central bank sells these securities, it removes funds from the economy.
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