When open market operations are used to ____ bank funds, the yield on debt instruments ____.
A)reduce; decreases
B)reduce; increases
C)increase; increases
D)None of these are correct.

Question

Quizplus · Accepted Answer

When open market operations are used to reduce bank funds, the Federal Reserve sells securities. This action takes money out of circulation and out of banks, reducing the supply of loanable funds. As a result, the cost of borrowing (interest rates or yield on debt instruments) increases due to the decreased supply of money.

When Open Market Operations Are Used to ____ Bank Funds