If the Federal Reserve Decided to Lower Interest Rates, It

question 402

Multiple Choice

If the Federal Reserve decided to lower interest rates, it could

• A)buy bonds to lower the money supply.
• B)buy bonds to raise the money supply.
• C)sell bonds to lower the money supply.
• D)sell bonds to raise the money supply.

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Definitions:

Fisher Effect

The one-for-one adjustment of the nominal interest rate to the inflation rate

Inflation

A sustained increase in the general price level of goods and services in an economy over time, leading to a decrease in the currency's purchasing power.

Nominal Interest Rate

The stated interest rate without adjustment for inflation, representing the actual percentage paid or earned.

Open Market Sales

Operations by a central bank to sell securities in the open market to decrease the money supply in the economy.