-In Figure 15.3,the Fed can change the equilibrium interest rate from 2 percent to 6 percent by

Question

Quizplus · Accepted Answer

Selling bonds in the open market decreases the money supply, which increases the demand for money and leads to an increase in the interest rate. Reducing the discount rate may encourage borrowing by banks, but it doesn't directly affect the money supply and may not have a significant impact on the interest rate. Buying bonds in the open market would increase the money supply, which would decrease the demand for money and lead to a decrease in the interest rate. Therefore, the best choice to increase the interest rate from 2 percent to 6 percent is A, selling bonds in the open market.