If the Fed undertakes open market sales, then
A)the LM-curve will shift to the right
B)the LM-curve will shift to the left
C)interest rates will decrease and income will increase
D)bond prices will increase
E)both A and C

Question

Quizplus · Accepted Answer

Open market sales by the Fed lead to a decrease in the money supply, which shifts the LM curve to the left causing higher interest rates and a lower level of income. Therefore, only option B is the correct answer. Option E cannot be correct because it includes both A and C, which are contradictory.

If the Fed Undertakes Open Market Sales, Then