If the Federal Reserve increases the money supply,then initially people want to
A)sell bonds so the interest rate rises.
B)sell bonds so the interest rate falls.
C)buy bonds so the interest rate rises.
D)buy bonds so the interest rate falls.

Question

Quizplus · Accepted Answer

When the Federal Reserve increases the money supply, there is an excess supply of money in the market. This means that people have more money to spend, leading to an increased demand for goods and services. To curb this demand and prevent inflation, the Fed may conduct open market operations, where they buy government bonds from banks, increasing the money supply in the market. This increases the supply of bonds in the market which leads to a decrease in bond prices and an increase in interest rates. To take advantage of the higher interest rates, people will want to buy bonds, not sell them. Therefore, the best choice is to buy bonds so the interest rate falls (choice D).

If the Federal Reserve Increases the Money Supply,then Initially People