Final answer:
Open-market sales by a central bank decrease the money supply, leading to higher interest rates, reduced investment and consumption, and therefore shift the aggregate demand curve to the left, resulting in a decrease in both the price level and real GDP. Therefore correct option is B
Step-by-step explanation:
In the short run, open-market sales by a central bank generally decrease the money supply because the central bank sells government securities to the public. As a result, this monetary policy action typically leads to higher interest rates, which reduce the level of investment and consumption.
Consequently, open-market sales will shift the aggregate demand curve to the left. According to the dynamics of the aggregate demand and aggregate supply (AD/AS) model, a leftward shift in the aggregate demand curve results in a decrease in the price level and a reduction in real GDP. Therefore, the correct answer is:
b. decrease the price level and real GDP.