An open market purchase of government securities by the Fed will tend to result in which of the following, other things being equal?
A)increased bond prices
B)an increase in real output
C)decreased interest rates
D)all of the above

Question

An open market purchase of government securities by the Fed will tend to result in which of the following, other things being equal?
A)​increased bond prices
B)​an increase in real output
C)​decreased interest rates
D)​all of the above

Quizplus · Accepted Answer

An open market purchase of government securities by the Fed increases the money supply in the economy. This leads to a decrease in interest rates, which in turn leads to an increase in bond prices as investors buy more bonds at lower interest rates. The decrease in interest rates also stimulates investment and consumption, leading to an eventual increase in real output. Therefore, all of the above options are correct.

An Open Market Purchase of Government Securities by the Fed