When the Fed engages in quantitative easing,it alters ______________________ and when the Fed makes open market purchases it alters _______________________.

Question

Quizplus · Accepted Answer

When the Fed engages in quantitative easing, it purchases long-term securities which leads to an increase in demand for those securities and ultimately causing long-term interest rates to decrease. Therefore, option B is correct. Open market purchases increase the supply of money in the economy and lead to a decrease in short-term interest rates. Thus, A is incorrect. The required reserve ratio is a tool used by the Fed to control banks' ability to lend money, and altering it would not directly affect interest rates. Therefore, C is incorrect. Income tax rates are set by the government and are not directly controlled by the Fed. Thus, D is incorrect.

When the Fed Engages in Quantitative Easing,it Alters ______________________ and When