Question

A sale of treasury bills by the federal reserve _____ interest rates and _____ the money supply. a. lowers; reduces b. lowers; increases c. raises; reduces d. raises; increases

Answer 1

The correct answer from the given options is c.
A sale of treasury bills by the federal reserve raises interest rates and reduces the money supply.
According to the Federal Reserve Act, the Federal Reserve may buy and sell Treasury securities but condition is that it may sell and buy only in the open market.
The Federal Reserve does not take part in the competitive bidding at Treasury auctions and also in the management of Treasury's debt.