Suppose that the Federal Reserve buys Treasury bills. We can expect this transaction to _____ the money supply, _____ Treasury bill prices, and _____ interest rates.

Question

Quizplus · Accepted Answer

When the Federal Reserve buys Treasury bills, it injects money into the economy, increasing the money supply. This demand for Treasury bills raises their prices and, due to the inverse relationship between bond prices and interest rates, lowers interest rates.

Suppose That the Federal Reserve Buys Treasury Bills