If the Fed wants to raise interest rates, then it can use its open market operations to:
A) increase the money supply.
B) decrease the money supply.
C) increase money demand.
D) decrease money demand.

Question

Quizplus · Accepted Answer

If the Fed wants to raise interest rates, it needs to decrease the money supply. It can do this by selling government securities in the open market, which reduces the amount of money available in circulation. This reduction in the money supply leads to an increase in interest rates, as borrowers have less access to credit and lenders can demand higher rates. Therefore, the correct choice is B, decrease the money supply.

If the Fed Wants to Raise Interest Rates, Then It