The ripple effects that occur when the Fed sells securities in the open market include .

Question

Quizplus · Accepted Answer

When the Fed sells securities in the open market, it reduces the amount of reserves available in the banking system, leading to a decrease in the money supply. This in turn leads to an increase in interest rates, making it more expensive for businesses and consumers to borrow, and hence reducing consumption and investment. The other options (A, B, and C) suggest the opposite effects, and are therefore incorrect.

The Ripple Effects That Occur When the Fed Sells Securities