If the Fed wants short-term interest rates to rise,it could:
A) carry out open market purchases.
B) engage in a monetary contraction.
C) buy T-bills.
D) issue a directive for banks to raise interest rates.

Question

Quizplus · Accepted Answer

Engaging in a monetary contraction would decrease the money supply and increase the demand for loans, leading to a rise in short-term interest rates. The other options, such as open market purchases and buying T-bills, would increase the money supply and potentially lower interest rates. Issuing a directive for banks to raise rates would also not be effective in raising short-term interest rates as it would be up to individual banks to decide whether or not to follow the directive.

If the Fed Wants Short-Term Interest Rates to Rise,it Could