If the Fed sells government securities on the open market,this will cause _____ in the quantity of money available and _____ in the interest rate.

Question

Quizplus · Accepted Answer

When the Fed sells government securities on the open market, it decreases the reserves that banks hold. This, in turn, reduces the amount of money banks can lend out and leads to a decrease in the quantity of money available. This decrease in the supply of money causes the interest rate to increase as borrowing becomes more expensive.

If the Fed Sells Government Securities on the Open Market,this