An open market sale by the Federal Reserve will increase

A. business taxes.

B. the money supply.

C. investment spending.

D. interest rates.

E. bank loans.

The answer is D).

When banks have a sale in the open market, the Fed is supplying the market with bonds and in return retracts money from the financial system. As a result, the amount of liquidity and hence loanable funds in the financial market reduces. This reduction in the supply of loanable funds will increase interest rate, holding demand the same.