Suppose that the Federal reserve is concerned about the effects of rising stock prices on the economy. What could it do?
A)buy bonds to raise the interest rate
B)Buy bonds to lower the interest rate
C)sell bonds to raise the interest rate.
D)Sell bonds to raise the interest rate

Question

Quizplus · Accepted Answer

Selling bonds would decrease the money supply and raise interest rates which would lead to a decrease in investment and consumption spending. This could potentially slow down the stock market and prevent any negative effects on the economy. Buying bonds would increase the money supply and lower interest rates, which could potentially exacerbate the stock market bubble.

Suppose That the Federal Reserve Is Concerned About the Effects