If the Fed sells U.S.government securities to drain reserves from banks,which of the following is most likely to occur?
A)The demand for money will increase and the interest rate will rise.
B)The money supply will increase and the interest rate will fall.
C)The interest rate will rise and the quantity of money demanded will fall.
D)The money supply will decrease and the interest rate will fall.
E)The interest rate will fall and the quantity of money demanded will increase.

Question

Quizplus · Accepted Answer

When the Fed sells U.S. government securities, it reduces the supply of reserves in the banking system, causing the interest rate to rise as banks compete for available funds. This increase in the interest rate leads to a decrease in the quantity of money demanded, as borrowing becomes more expensive. Therefore, choice C is the most likely to occur.

If the Fed Sells U