The combination of an increase in the discount rate and an open market sale of government securities by the Fed will tend to result in:

Question

Quizplus · Accepted Answer

When the discount rate is increased, it becomes more expensive for commercial banks to borrow from the Fed, so they tend to lend less, resulting in a decrease in loan volume issued by the commercial banking system, which answers A. Open market sale of government securities by the Fed increases the supply of bonds, which lowers their prices, so B is also correct. When there is a decrease in investment, there is a lower level of economic activity, resulting in increased unemployment in the short run, providing support for C. Therefore, the correct choice is E, i.e., all of the above.

The Combination of an Increase in the Discount Rate and an Open