The Federal Reserve affects interest rates by:
A) setting them with regulations.
B) open market operations that shift the money demand curve.
C) open market operations that shift the money supply curve.
D) changing tax rates.

Question

Quizplus · Accepted Answer

The Federal Reserve affects interest rates by conducting open market operations that shift the money supply curve. When the Fed buys government securities, they increase the money supply in the economy, which lowers interest rates. When they sell government securities, they decrease the money supply, which raises interest rates. The Fed does not set interest rates with regulations, and changing tax rates is a responsibility of the government, not the Federal Reserve.

The Federal Reserve Affects Interest Rates By