If the Fed sells government securities, in the short run the nominal interest rate_{--------------------} and the real interest rate_{--------------------}. A)does not change; rises B)rises; does not change C)rises; falls D)rises; rises E)falls; falls

Question

Quizplus · Accepted Answer

When the Fed sells government securities, it decreases the money supply, leading to higher nominal interest rates. In the short run, real interest rates also rise as they are closely linked to nominal rates and inflation expectations do not adjust immediately.

If the Fed Sells Government Securities, in the Short Run