If the Fed buys more bonds from the public, and increases the price it is willing to pay for the bonds, what will happen to interest rates?
A)They will rise.
B)They will fall.
C)They will remain unchanged.
D)The relationship between bond prices and interest rates is unclear.

Question

Quizplus · Accepted Answer

When the Fed buys more bonds from the public and increases the price it is willing to pay for the bonds, it increases the demand for bonds. As a result, the price of bonds increases and the yield (or interest rate) decreases. Therefore, interest rates will fall.

If the Fed Buys More Bonds from the Public, and Increases