Question 15 4 pts If the Federal Reserve engages in expansionary monetary policy

Question

Question 15 4 pts If the Federal Reserve engages in expansionary monetary policy, why will interest rates decrease? O The Federal Reserve increases the money supply by buying securities, which decreases the equilibrium interest rate in the loanable funds market. The Federal Reserve sets the interest rate, so they will make it lower The Federal Reserve increases the money supply by selling securities, which decreases the equilibrium interest rate in the loanable funds market. O The Federal Reserve issues more dollar bills, which increases the money supply which lowers the equilibrium interest rates in the market for loanable funds.

Explanation / Answer

a is the correct option

Reason

If securities are bought by the government, government will increase the total money supply but it will also decrease the interest rate in doing so.

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