An open-market purchase of Treasury bills by the Fed not only raises the money supply but also
A)drives up T-bill prices and pushes interest rates down.
B)drives up T-bill prices and drives interest rates up.
C)pushes T-bill prices down and pushes interest rates down.
D)none of these.

Question

Quizplus · Accepted Answer

When the Fed purchases Treasury bills on the open market, the increased demand for those bills raises their prices. As bond prices rise, yields (or interest rates) fall. Therefore, an open-market purchase of Treasury bills by the Fed not only increases the money supply but also drives up T-bill prices and pushes interest rates down.

An Open-Market Purchase of Treasury Bills by the Fed Not