If the Fed Acts to Decrease the Money Supply

question 141

Multiple Choice

If the Fed acts to decrease the money supply,

• A) it will increase the supply of bonds, drive bond prices up, and drive interest rates down.
• B) it will increase the demand for bonds, drive bond prices down, and drive interest rates down.
• C) it will increase the supply of bonds, drive bond prices down, and drive interest rates up.
• D) it will increase the demand for bonds, drive bond prices up, and drive interest rates down.

---

Definitions:

Normal Good

A product or service for which demand increases as consumer income increases, and vice versa, demonstrating a direct relationship between income and demand.

Income

The financial gain earned by an individual or entity, typically through wages, investments, or other forms of revenue.

Demand

The desire to own goods or services combined with the ability and willingness to pay for them.

Demand Curve

A curve on a graph that exhibits the quantity of a good that consumers are prepared to buy at different prices.