If the Fed's open-market operations expand the money supply, one can expect
A)a decrease in excess reserves.
B)bond prices to rise.
C)interest rates to rise.
D)open-market sales of T-bills.

Question

Quizplus · Accepted Answer

When the Fed's open-market operations expand the money supply, bond prices typically rise because there is more money available to buy bonds, increasing demand and decreasing yields. This results in lower interest rates. A decrease in excess reserves is not necessarily a direct result of this action, and open-market sales of T-bills would actually reduce the money supply.

If the Fed's Open-Market Operations Expand the Money Supply, One