If the Fed sells government securities to banks,eventually we expect
A)aggregate demand to increase
B)short-run aggregate supply to decrease
C)interest rates to decrease
D)planned investment expenditures to decrease
E)real Gross Domestic Product to increase

Question

Quizplus · Accepted Answer

When the Fed sells government securities to banks, it reduces the money supply in the economy, which increases interest rates. This increase in interest rates makes borrowing and investment more expensive, leading to a decrease in planned investment expenditures. This can lead to a decrease in aggregate demand and real GDP in the short run. Therefore, the best choice is D, planned investment expenditures decrease.

If the Fed Sells Government Securities to Banks,eventually We Expect