When the Fed buys bonds,it increases the demand for bonds,which pushes:
A) up the price of bonds,thus raising the interest rate.
B) up the price of bonds,thus lowering the interest rate.
C) down the price of bonds,thus raising the interest rate.
D) down the price of bonds,thus lowering the interest rate.

Question

Quizplus · Accepted Answer

When the Fed buys bonds, it increases demand for bonds in the market. As a result, the price of bonds goes up. Since price and interest rates are inversely related, an increase in bond price leads to a decrease in interest rates. Hence, when the Fed buys bonds, it pushes up the price of bonds, thereby lowering the interest rate.

When the Fed Buys Bonds,it Increases the Demand for Bonds,which