ECONOMICS
MONEY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Sell government bonds and target a higher Federal Funds Rate
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Sell government bonds and target a lower Federal Funds Rate
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Buy government bonds and target a higher Federal Funds Rate
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Buy government bonds and target a lower Federal Funds Rate
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Detailed explanation-1: -The Fed raises interest rates to slow the amount of money circulating through the economy and drive down aggregate demand. With higher interest rates, there will be lower demand for goods and services, and the prices for those goods and services should fall.
Detailed explanation-2: -If the Fed sells government bonds, bank reserves will: decrease, leading to a decrease in the money supply. During an economic slump, policies that lower interest rates may not actually boost investment because: of pessimistic expectations by businesses about the future of the economy.
Detailed explanation-3: -If the Fed buys bonds in the open market, it increases the money supply in the economy by swapping out bonds in exchange for cash to the general public. Conversely, if the Fed sells bonds, it decreases the money supply by removing cash from the economy in exchange for bonds.
Detailed explanation-4: -Raising rates can lead major businesses, particularly those that hold high amounts of corporate debt, to lay off workers or slow hiring. As a result, the unemployment rate increases, further slowing the circulation of money as consumer demand drops.