a. When the Federal Reserve makes an open market purchase, the Fed: buys securit

Question

a. When the Federal Reserve makes an open market purchase, the Fed:

buys securities from banks and the public, which will decrease the money supply.

sells securities to banks and the public, which will decrease the money supply.

buys securities from banks and the public, which will increase the money supply.

sells securities to banks and the public, which will increase the money supply.

b. If the Federal Reserve desires to increase interest rates, it could make an (open market purchase / open market sale) , which would (increase / decrease) the money supply and achieve the increase in interest rates.

Explanation / Answer

a. buys securities from banks and the public, which will increase the money supply. Fed Buy Securites and infuse money in contrary

b. Open Market Sale will decrease the money supply in the system and hence leads to increase in interest rates

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