If the demand for money increases and the monetary authorities want interest rates to remain unchanged,which of the following would be the most appropriate policy?
A)recall currency from circulation
B)reduce tax rates
C)buy bonds in the open market
D)raise the target overnight rate
E)sell bonds in the open market

Question

Quizplus · Accepted Answer

If demand for money increases and the monetary authorities want interest rates to remain unchanged, buying bonds in the open market is the appropriate policy. This will increase the money supply, which will help to meet the increased demand for money without raising interest rates.

If the Demand for Money Increases and the Monetary Authorities