If the Fed wishes to reduce aggregate demand, it will conduct an _____ which will _____ bond prices, _____ interest rates, and _____ investment.

Question

Quizplus · Accepted Answer

When the Fed conducts an open market sale, it decreases the amount of money in the economy, which leads to lower bond prices and higher interest rates. When interest rates are higher, borrowing becomes more expensive and investment is discouraged, which helps to reduce aggregate demand. Therefore, option C is the correct answer.

If the Fed Wishes to Reduce Aggregate Demand, It Will