If the Fed purchases U.S. government securities in the open market, all of the following would occur EXCEPT

Question

Quizplus · Accepted Answer

When the Federal Reserve purchases U.S. government securities in the open market, it increases the reserves of the banking system, leading to an expansion of the money supply (A). This, in turn, typically lowers interest rates, which can stimulate borrowing and investment (B), potentially leading to an increase in real GDP (D). However, the purchase of bonds by the Fed increases their prices (due to higher demand), which is the opposite of a fall in bond prices (C). Therefore, a fall in bond prices does not occur; instead, bond prices rise.

If the Fed Purchases U