If the Fed wants to maintain current interest rates, it would be buying government bonds in the open market when
A) the demand for money decreases.
B) the demand for money increases.
C) investment demand decreases.
D) the discount rate increases.

Question

Quizplus · Accepted Answer

When the demand for money increases, it puts upward pressure on interest rates. By buying government bonds in the open market, the Fed injects liquidity into the banking system, increasing the supply of money, which helps to maintain the current interest rates.

If the Fed Wants to Maintain Current Interest Rates, It