If the Fed fears inflation it will undertake an open market____________ of securities, the federal funds rate will ____________and the long-term real interest rate will____________ .

Question

Quizplus · Accepted Answer

When the Fed fears inflation, it sells securities in open market operations, which reduces the money supply, causing the federal funds rate to rise. This increase in short-term rates typically leads to an increase in long-term real interest rates as well.

If the Fed Fears Inflation It Will Undertake an Open