Consider the money market drawn with the value of money on the vertical axis. If money demand is unchanged and the price level rises, then a. the money supply must have increased, perhaps because the Fed bought bonds. b. the money supply must have decreased, perhaps because the Fed bought bonds. c. the money supply must have increased, perhaps because the Fed sold bonds. d. the money supply must have decreased, perhaps because the Fed sold bonds.

It is an expansionary monetary policy that would lead to an increase in money supply. Buying bonds is a form of expansionary monetary policy because it increases the supply of money in the economy

Monetary policy are policies taken by the central bank of a country to shift aggregate demand.

There are two types of monetary policy :

Expansionary monetary policy : these are polices taken in order to increase money supply. When money supply increases, aggregate demand increases. reducing interest rate and open market purchase are ways of carrying out expansionary monetary policy

Contractionary monetary policy : these are policies taken to reduce money supply. When money supply decreases, aggregate demand falls. Increasing interest rate and open market sales are ways of carrying out contractionary monetary policy

Goals of monetary policy include

• financial market stability

• economic growth

• high employment

• price stability