If the target rate of interest is higher than the equilibrium interest rate, the Federal Reserve will _____ Treasury bills in the open market, _____ the supply of money, and _____ the interest rate to the target rate.
A) sell; increase; lower
B) buy; increase; lower
C) sell; decrease; raise
D) buy; decrease; raise

Question

Quizplus · Accepted Answer

When the target rate of interest is higher than the equilibrium interest rate, the Federal Reserve sells Treasury bills in the open market. This action decreases the supply of money, which in turn raises the interest rate towards the target rate.

If the Target Rate of Interest Is Higher Than the Equilibrium