According to the Theory of Rational Expectations, If the Fed

question 8

Multiple Choice

According to the theory of rational expectations, if the Fed uses open market operations to increase the supply of loanable funds, the ultimate effect on interest rates

• A)is a reduction in interest rates.
• B)is an increase in interest rates.
• C)is no effect on interest rates.
• D)cannot be determined because the effects may be offsetting.

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