Suppose That the Fed Makes a $100 Billion Open-Market Sale

question 186

Multiple Choice

Suppose that the Fed makes a $100 billion open-market sale of Treasury bonds, and the money multiplier is 6. Which of the following impacts are most likely to result?

• A) The money supply shifts inward, and the equilibrium interest rate rises in the money market.
• B) The money supply shifts outward, and the equilibrium interest rate falls in the money market.
• C) Investment declines, causing the aggregate demand curve to shift leftward, reducing equilibrium real GDP and thus slowing the economy.
• D) Both a. and c. are correct.
• E) Both b. and c. above are correct.