When the Fed Sells Bonds and Drains Reserves from the Banking

question 70

Multiple Choice

When the Fed sells bonds and drains reserves from the banking system, thereby reducing the supply of money, this policy will

• A) decrease short-term interest rates to a greater degree than long-term interest rates.
• B) decrease long-term interest rates to a greater degree than short-term interest rates.
• C) increase short-term interest rates to a greater degree than long-term interest rates.
• D) increase long-term interest rates to a greater degree than short-term interest rates.

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