If the Fed buys government bonds on the open market,which of the following will occur?

Name: If the Fed buys government bonds on the open market,which of the following will occur?
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Question

Quizplus · Accepted Answer

When the Fed buys government bonds on the open market, it injects money into the economy, thereby increasing the money supply. This increase in money supply leads to a fall in the interest rate, as there is more money available for borrowing and lending. Therefore, the correct option is D, i.e., the interest rate will fall.

If the Fed Buys Government Bonds on the Open Market,which