Assume the demand for money curve is stationary and the Fed increases the money supply. The result is that people:
A) increase the supply of bonds, thus driving up the interest rate.
B) increase the supply of bonds, thus driving down the interest rate.
C) increase the demand for bonds, thus driving up the interest rate.
D) increase the demand for bonds, thus driving down the interest rate.

Question

Quizplus · Accepted Answer

When the Fed increases the money supply, people have more money than they want to hold, leading them to buy more bonds. This increased demand for bonds drives up bond prices and, consequently, drives down the interest rate.

Assume the Demand for Money Curve Is Stationary and the Fed