Using the money demand and money supply model,an open market purchase of Treasury securities by the Federal Reserve would cause the equilibrium interest rate to
A)increase.
B)decrease.
C)not change.
D)increase if the economy is in a recession.

Question

Quizplus · Accepted Answer

An open market purchase by the Federal Reserve would increase the money supply in the economy, shifting the money supply curve to the right. This would lead to a lower equilibrium interest rate as the supply of money would exceed the demand for money at the initial interest rate level. Therefore, an open market purchase would cause the equilibrium interest rate to decrease.

Using the Money Demand and Money Supply Model,an Open Market