If the Fed buys bonds in the open market, I. investment spending should increase. II. short-term interest rates should increase. III. inflation could increase.
A) I and II only
B) II and III only
C) I and III only
D) I, II, and III

Question

Quizplus · Accepted Answer

When the Fed buys bonds in the open market, the increased demand for bonds leads to a decrease in interest rates. This, in turn, can stimulate investment spending. However, this can also lead to an increase in money supply, which can lead to inflationary pressures. Therefore, options I and III are correct, but option II is incorrect.

If the Fed Buys Bonds in the Open Market, I