If the Fed decides to buy T-bills, it increases the demand for T-bills.How will this affect the price of T-bills and the interest rate?
A)T-bill prices fall and interest rates fall.
B)T-bill prices rise and interest rates rise.
C)T-bill prices rise and interest rates fall.
D)T-bill prices fall and interest rates rise.

Question

Quizplus · Accepted Answer

When the Fed buys T-bills, it increases the demand for T-bills which will result in a rise in their price. The increase in demand will also decrease the interest rate as the price increase reduces the yield on the T-bills.

If the Fed Decides to Buy T-Bills, It Increases the Demand