If the Federal Reserve decided to lower interest rates, it could
A)buy bonds to lower the money supply.
B)buy bonds to raise the money supply.
C)sell bonds to lower the money supply.
D)sell bonds to raise the money supply.

Question

Quizplus · Accepted Answer

When the Federal Reserve buys bonds, it injects money into the economy and increases the money supply. This would lead to lower interest rates because there would be more money available for borrowing, making it easier and cheaper to obtain credit. Selling bonds would have the opposite effect of reducing the money supply and raising interest rates. Therefore, choice B is the correct answer.

If the Federal Reserve Decided to Lower Interest Rates, It