When the Fed sells bonds in the open market, we can expect
A) investment and net exports to rise.
B) investment to rise and net exports to fall.
C) investment to fall and net exports to rise.
D) investment and net exports to fall.

Question

Quizplus · Accepted Answer

When the Fed sells bonds in the open market, it decreases the money supply, causing interest rates to rise. This makes it more expensive for businesses to borrow money for investment and also strengthens the value of the currency, leading to a decrease in exports and therefore net exports. Thus, we can expect investment and net exports to fall.

When the Fed Sells Bonds in the Open Market, We