If the Fed reduces the money supply through open market operations
A) interest rates fall.
B) bond prices rise.
C) the speculative demand for money rises.
D) bond prices fall.

Question

Quizplus · Accepted Answer

When the Fed reduces the money supply through open market operations, this means they are selling government securities in the open market. This leads to a decrease in the supply of money in the economy, which in turn increases interest rates. Bond prices have an inverse relationship with interest rates, so when interest rates rise, bond prices fall. Therefore, the correct choice is D.

If the Fed Reduces the Money Supply Through Open Market