Suppose the U.S.Treasury issued $50 billion of short-term securities and sold them to the public.Other things held constant,what would be the most likely effect on short-term securities' prices and interest rates?
A) Prices and interest rates would both rise.
B) Prices would rise and interest rates would decline.
C) Prices and interest rates would both decline.
D) Prices would decline and interest rates would rise.
E) There is no reason to expect a change in either prices or interest rates.

Question

Quizplus · Accepted Answer

When the U.S. Treasury issues $50 billion of short-term securities, it increases the supply of securities in the market. As a result, demand for these securities will inevitably decline, leading to a fall in prices. The decline in demand means that the Treasury has to raise the interest rate on these securities to attract investors. Therefore, prices would decline and interest rates would rise.