If the Fed purchases U.S.government securities,gross domestic product:
A)increases because the resulting increase in the interest rate leads to a decrease in investment.
B)increases because the resulting decrease in the interest rate leads to an increase in investment.
C)decreases because the resulting increase in the interest rate leads to a decrease in investment.
D)decreases because the resulting increase in the interest rate leads to an increase in investment.
E)decreases because the resulting decrease in the interest rate leads to an increase in investment.

Question

Quizplus · Accepted Answer

When the Fed purchases U.S. government securities, it increases the demand for these securities and drives down their yields, which results in a decrease in interest rates. A decrease in interest rates makes it cheaper for businesses and individuals to borrow, which increases investment and consumption, ultimately leading to an increase in GDP.

If the Fed Purchases U.S.government Securities,gross Domestic Product