When the Federal Reserve decreases the federal funds target rate, the lower rate is achieved through
A)sales of government bonds, which reduces interest rates and causes people to hold less money.
B)purchases of government bonds, which reduces interest rates and causes people to hold less money.
C)purchases of government bonds, which reduces interest rates and causes people to hold more money.
D)sales of government bonds, which reduces interest rates and causes people to hold more money.

Question

Quizplus · Accepted Answer

When the Federal Reserve decreases the federal funds target rate, it typically purchases government bonds. This action increases the money supply in the economy, which reduces interest rates and encourages people to hold more money because it becomes cheaper to borrow.

When the Federal Reserve Decreases the Federal Funds Target Rate