An open market sale will A. Increase the bank reserves and money supply, and causes the...

An open market sale will

	A.	Increase the bank reserves and money supply, and causes the federal funds rate to fall.
	B.	Reduce the bank reserves and money supply, and causes the federal funds rate to raise.
	C.	Increase the bank reserves and money supply, and causes the federal funds rate to raise.
	D.	Reduce the bank reserves and money supply, and causes the federal funds rate to fall.

Solutions

Expert Solution

The correct answer is the second option i.e. option B. Reduce the bank reserves and money supply, and causes the federal funds rate to raise.

Let's understand what an open market sale does.

Open market sales

lower reserves
lowers the monetary base
and thus lowers the money supply.
Thus, it shifts the supply curve to the left and causes the federal funds interest rate to rise.

jeff jeffy answered 2 years ago

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