Assume a fixed demand for money curve and the Fed decreases the money supply. In response, people will:
A) sell bonds, thus driving up the interest rate.
B) sell bonds, thus driving down the interest rate.
C) buy bonds, thus driving up the interest rate.
D) buy bonds, thus driving down the interest rate.

Question

Quizplus · Accepted Answer

When the Fed decreases the money supply, people will sell bonds to obtain more money, which increases the supply of bonds in the market, driving up the interest rate.

Assume a Fixed Demand for Money Curve and the Fed