Suppose the Fed announces that it expects interest rates to fall in the next quarter. What happens to the demand for money today?

Question

Quizplus · Accepted Answer

When the Fed announces that it expects interest rates to fall in the next quarter, it suggests that bond prices are likely to rise, which leads to a decrease in interest rates. This also means that the expected returns on alternative investments to money will likely decrease, reducing the speculative demand for money. Therefore, the best choice is D, as the speculative demand for money goes down.

Suppose the Fed Announces That It Expects Interest Rates to Fall