When the Fed buys government bonds,
A)the money supply increases and the federal funds rate increases.
B)the money supply increases and the federal funds rate decreases.
C)the money supply decreases and the federal funds rate increases.
D)the money supply decreases and the federal funds rate decreases.

Question

Quizplus · Accepted Answer

When the Fed buys government bonds, it increases the amount of money in the economy, therefore increasing the money supply. This also puts downward pressure on interest rates, causing the federal funds rate to decrease.

When the Fed Buys Government Bonds