If the Fed wishes to reduce nominal interest rates, it must engage in an open market ________ of bonds that ________ the money supply.
A)sale; increases
B)sale; decreases
C)purchase; decreases
D)purchase; increases

Question

Quizplus · Accepted Answer

When the Fed purchases bonds in the open market, it gives up cash in exchange for bonds. This increases the money supply and reduces nominal interest rates.

If the Fed Wishes to Reduce Nominal Interest Rates, It