If the Federal Reserve conducts an open market purchase, the
A) interest rate will not change.
B) interest rate will increase.
C) interest rate will decrease.
D) money supply is decreased.

Question

Quizplus · Accepted Answer

An open market purchase by the Federal Reserve involves the purchase of securities from banks which in turn increases the reserves of these banks. When the reserves of banks increase, they have more money to lend out which leads to a decrease in the interest rate. Therefore, the correct answer is C.

If the Federal Reserve Conducts an Open Market Purchase, the