A decision on the part of the FOMC to lower interest rates must necessarily be followed by
A) Fed open market purchases, which lower the money supply and reduce interest rates.
B) Fed open market purchases, which increase the money supply and reduce interest rates.
C) Fed open market sales, which lower the money supply and reduce interest rates.
D) Fed open market sales, which increase the money supply and reduce interest rates.

Question

Quizplus · Accepted Answer

Fed open market purchases increase the money supply by buying securities, which in turn lowers interest rates as there is more money available for lending.

A Decision on the Part of the FOMC to Lower