What happens when the Fed aims to change interest rates?

Question

Quizplus · Accepted Answer

When the Federal Reserve aims to change interest rates, it uses open market operations to buy or sell government bonds. If the Fed wants to decrease interest rates, it will purchase bonds, injecting money into the economy and increasing the supply of money in circulation. This increase in the money supply lowers the cost of borrowing, which reduces interest rates. Conversely, if the Fed wants to increase interest rates, it will sell bonds, absorbing money from the economy and decreasing the money supply. This reduction in the money supply increases the cost of borrowing, which raises interest rates.

What Happens When the Fed Aims to Change Interest Rates