question archive The Federal Reserve's Open Market Committee has decided that the federal funds rate should be 2 percent rather than the current rate of 1
The Federal Reserve's Open Market Committee has decided that the federal funds rate should be 2 percent rather than the current rate of 1
Subject:EconomicsPrice:2.88 Bought3
The Federal Reserve's Open Market Committee has decided that the federal funds rate should be 2 percent rather than the current rate of 1.5 percent. The appropriate open market action is to _____ Treasury bills to _____ money _____.
A. sell; decrease; demand.
B. sell; decrease; supply.
C. buy; decrease; supply.
D. buy; increase; demand.
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Option b. sell; decrease; supply is correct
This option is correct because to achieve the higher interest rate, the central bank uses contractionary monetary policy such that the money supply reduces by selling treasury bills in open market. It shifts the LM curve leftward that increases the interest rate causing decrease in investment. It causes the aggregate demand curve shifts leftward.
