The Fed decreases the interest rate base by: a. Buying bonds. b. Selling bonds. c. Printing...

The Fed decreases the interest rate base by:

a. Buying bonds.

b. Selling bonds.

c. Printing money.

d. Reducing the reserve ratio.

Solutions

Expert Solution

ANSWER : a. Buying bonds

The Federal Reserve maintains the economy by manipulating interest rates and open market operations. Fed engages in open market operations by buying or selling the treasury bonds in the open market in order to increase or decrease money supply in the economy.

When Fed purchases bonds in the open market it leads to increase in money supply by exchanging bonds for cash to the public. When Fed buys bonds, prices are pushed higher and interest rates decrease.

Rahul Sunny answered 1 year ago

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