If moderate deficits put ________ pressure on interest rates,the Fed may ________ bonds,leading to an increase in high-powered money.
A)upward; sell
B)upward; buy
C)downward; sell
D)downward; buy

Question

Quizplus · Accepted Answer

Moderate deficits put upward pressure on interest rates because there is increased demand for borrowing. In response, the Federal Reserve may decide to buy bonds, which increases the money supply and lowers interest rates. This process is known as open market operations and it involves purchasing government bonds from banks and other financial institutions. As a result, the banks have more reserves which they can lend out, increasing the supply of money in the economy. This increase in high-powered money helps to counteract the upward pressure on interest rates caused by the deficit.

If Moderate Deficits Put ________ Pressure on Interest Rates,the Fed