If the Treasury is compelled by a sizable budget deficit to borrow funds from the Federal Reserve banks, all of the following effects are likely except one. Which effect is not likely to happen?

Question

Quizplus · Accepted Answer

When the Treasury borrows from the Federal Reserve, it effectively increases the money supply and the reserves of depository institutions, which can lead to more spending in the economy. However, this increase in money supply typically leads to lower interest rates, not higher, as the increased supply of money makes borrowing cheaper.

If the Treasury Is Compelled by a Sizable Budget Deficit