Suppose the Federal Reserve buys Treasury bills. We can expect this transaction to _____ the money supply, _____ Treasury bill prices, and _____ interest rates.

Question

Quizplus · Accepted Answer

When the Federal Reserve buys Treasury bills, it injects cash into the financial system, increasing the money supply. This increased demand for the Treasury bills causes their prices to rise. As bond prices rise, yields decrease, and interest rates fall. Thus, the correct option is "increase; raise; lower."

Suppose the Federal Reserve Buys Treasury Bills