The Federal Reserve influences the level of interest rates in the short run by changing the
A) demand for money through changes in reserve requirements.
B) demand for money through open market operations.
C) supply of money through changes in open market operations.
D) supply of money through changes in stock market operations.

Question

Quizplus · Accepted Answer

The Federal Reserve can directly influence the supply of money through open market operations, such as buying or selling government bonds. When the Fed buys bonds, they increase the money supply, which in turn can lower interest rates in the short run. The demand for money is primarily determined by economic activity and consumer preferences, and the Fed can indirectly affect it through changes in the money supply. However, reserve requirements and stock market operations are not primary tools used by the Fed to influence interest rates.

The Federal Reserve Influences the Level of Interest Rates in the Short