An open market ________ by the Fed decreases interest rates and ________ investment.
A) purchase; increases
B) purchase; decreases
C) sale; increases
D) sale; decreases

Question

Quizplus · Accepted Answer

When the Fed buys securities in open market operations, it injects money into the economy, leading to an increase in money supply. This increase in supply leads to a decrease in interest rates as banks have more money to lend out. Lower interest rates make it cheaper for businesses to borrow money, which in turn increases investment. Therefore, purchase by the Fed decreases interest rates and increases investment.

An Open Market ________ by the Fed Decreases Interest Rates