Suppose that the Federal reserve is concerned about the effects of falling stock prices on the economy.What could it do?
A)buy bonds to raise the interest rate
B)buy bonds to lower the interest rate
C)sell bonds to raise the interest rate
D)sell bonds to raise the interest rate.

Question

Quizplus · Accepted Answer

The Federal Reserve could buy bonds to increase the money supply and lower interest rates. Lower interest rates can stimulate investment and spending, which can help offset the negative effects of falling stock prices on the economy. Buying bonds can also increase the demand for bonds, which can help stabilize their prices and prevent further declines. Option A (buy bonds to raise interest rates) would have the opposite effect on investment and spending, and could further depress the stock market. Options C and D (selling bonds to raise interest rates) would also be counterproductive, as they would further decrease investment and spending, worsening the impact of falling stock prices.

Suppose That the Federal Reserve Is Concerned About the Effects