ECONOMICS
FEDERAL RESERVE
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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buy bonds from the banks
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sell bonds to the banks
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invade the bank through the use of armed forces
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call the United Nations for a loan
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Detailed explanation-1: -Conversely, if the Fed wants to decrease the money supply, it sells bonds from its account, thus taking in cash and removing money from the economic system.
Detailed explanation-2: -If the Fed acts to decrease the money supply, it will increase the supply of bonds, drive bond prices down, and drive interest rates up.
Detailed explanation-3: -When the Fed sells bonds to the banks, it takes money out of the financial system, reducing the money supply.
Detailed explanation-4: -When Fed policymakers decide that they want to raise interest rates, the Fed sells government bonds. This sale reduces the price of bonds and raises the interest rate on these bonds. (We can also think of this as the Fed reducing the money supply. This makes money less plentiful and drives up the price of borrowing.)
Detailed explanation-5: -The answer is A) When the fed sells bonds in the open market, interest rates rise and aggregate demand shifts to the left. When the Fed sells bonds, they are taking money out of the economy.