If the Fed conducts open-market purchases,then which of the following quantities increase(s)?
A) interest rates,prices,and investment spending
B) interest rates and prices,but not investment spending
C) prices and investment spending,but not interest rates
D) interest rates,but not prices or investment spending

Question

Quizplus · Accepted Answer

When the Fed conducts open-market purchases, it purchases Treasury securities from banks and other financial institutions, increasing the reserves held by these institutions. This increase in reserves promotes an increase in lending and ultimately an increase in investment spending by businesses. With greater demand for investment, the prices of investments will also rise. However, since the Fed is buying securities, it increases the money supply, which often leads to a decrease in interest rates. Therefore, prices and investment spending will increase, but interest rates may not necessarily increase.

If the Fed Conducts Open-Market Purchases,then Which of the Following