If the Fed buys bonds in the open market,which of the following will likely NOT happen?
A) Investment spending increases.
B) Short-term interest rates increase.
C) Aggregate demand increases.
D) The monetary base increases.

Question

Quizplus · Accepted Answer

When the Fed buys bonds in the open market, it increases the monetary base, injects reserves into the banking system, and reduces the interest rate on bonds. As a result, investment spending may increase, aggregate demand may increase, and the monetary base may increase. However, short-term interest rates should decrease (not increase) because banks now have more reserves, and there is more money available in the economy.

If the Fed Buys Bonds in the Open Market,which of the Following