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Figure: Changes in the Money Supply
-(Figure: Changes in the Money Supply) Refer to Figure: Changes in the Money Supply. Federal Reserve policy to increase the supply of money, hence to lower the interest rate from 6% to 4%, is accomplished by action that ________ Treasury bills.
A) lowers the price of
B) increases the interest rate on
C) increases the demand for
D) increases the supply of

Question

Use the following to answer questions:
Figure: Changes in the Money Supply 
-(Figure: Changes in the Money Supply) Refer to Figure: Changes in the Money Supply. Federal Reserve policy to increase the supply of money, hence to lower the interest rate from 6% to 4%, is accomplished by action that ________ Treasury bills.
A) lowers the price of 
B) increases the interest rate on 
C) increases the demand for 
D) increases the supply of

Quizplus · Accepted Answer

The Federal Reserve can increase the money supply and lower interest rates by purchasing Treasury bills, which increases the demand for them. This action raises their prices and lowers their yield (interest rate), aligning with the goal of reducing the overall interest rate from 6% to 4%.

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