Asked by Kayla Sanders on May 08, 2024
Verified
If the Fed sells government securities on the open market,this will cause _____ in the quantity of money available and _____ in the interest rate.
A) an increase;an increase
B) a decrease;an increase
C) an increase;a decrease
D) a decrease;a decrease
Government Securities
Financial instruments issued by a government to finance its activities, generally considered low-risk investments.
Quantity Of Money
The total amount of money available in an economy at a specific time, including both physical currency and digital balances.
- Investigate the consequences of trading government securities on the financial system and rate of interest.
Verified Answer
WS
Weston StilesMay 11, 2024
Final Answer :
B
Explanation :
When the Fed sells government securities on the open market, it decreases the reserves that banks hold. This, in turn, reduces the amount of money banks can lend out and leads to a decrease in the quantity of money available. This decrease in the supply of money causes the interest rate to increase as borrowing becomes more expensive.
Learning Objectives
- Investigate the consequences of trading government securities on the financial system and rate of interest.