When the Fed sells government securities,ceteris paribus,the money supply shifts to the ________ and the equilibrium interest rate ________.

Question

Quizplus · Accepted Answer

When the Fed sells government securities, it reduces the reserves of banks, which decreases the ability of banks to lend money. This results in a contraction of the money supply, causing the equilibrium interest rate to rise. Thus, the correct combination is option A, where the money supply shifts to the left, and the equilibrium interest rate rises.

When the Fed Sells Government Securities,ceteris Paribus,the Money Supply Shifts