If the Fed fears inflation it will undertake an open market ________ of securities, the federal funds rate will ________ and the long-term real interest rate will ________.

Question

Quizplus · Accepted Answer

When the Fed fears inflation, it will sell securities in an open market operation to reduce the money supply, which leads to higher interest rates (both the federal funds rate and the long-term real interest rate) as it becomes more expensive to borrow money.

If the Fed Fears Inflation It Will Undertake an Open