An open market ________ by the Fed decreases the money supply, which leads to ________ interest rates and a fall in investment spending.
A) sale; increased
B) sale; decreased
C) purchase; increased
D) purchase; decreased

Question

Quizplus · Accepted Answer

An open market sale by the Fed involves selling government securities to the public, which decreases the money supply. As the money supply decreases, interest rates increase because there is less money available for lending. Higher interest rates make borrowing more expensive, leading to a decrease in investment spending.

An Open Market ________ by the Fed Decreases the Money