If the Fed sells bonds, the short run impact of this policy will tend to include:
A)an increase in the inflation rate.
B)a reduction in unemployment.
C)an increase in real output.
D)an increase in real interest rates.

Question

If the Fed sells bonds, the short run impact of this policy will tend to include:
A)​an increase in the inflation rate.
B)​a reduction in unemployment.
C)​an increase in real output.
D)​an increase in real interest rates.

Quizplus · Accepted Answer

When the Fed sells bonds, it decreases the supply of money in the economy, leading to an increase in the demand for money and therefore an increase in real interest rates. This can discourage borrowing and reduce investment and consumption spending, potentially leading to a decrease in real output in the short run. There is no direct impact on inflation or unemployment from this policy action.

If the Fed Sells Bonds, the Short Run Impact of This