When the Fed announces that it is raising the federal funds rate,this signals its intention to _______ bonds in the open market and _______ the money supply.

Question

Quizplus · Accepted Answer

When the Fed raises the federal funds rate, it becomes more expensive for banks to borrow money, leading them to reduce their lending and investment activities. To combat inflation resulting from these activities, the Fed may sell bonds in the open market to reduce the money supply in circulation. Therefore, the correct choice is C - Sell; reduce.

When the Fed Announces That It Is Raising the Federal