When the Fed buys bonds, its demand _____ the price of bonds, _____ nominal interest rates.
A) increases; increasing
B) increases; decreasing
C) decreases; increasing
D) decreases; decreasing

Question

Quizplus · Accepted Answer

When the Fed buys bonds, its demand for bonds increases, leading to an increase in bond prices. Since bond prices and interest rates move inversely, this leads to a decrease in nominal interest rates. Therefore, the correct answer is B.

When the Fed Buys Bonds, Its Demand _____ the Price