Question

What changes is likely to follow when the Fed purchases U.S. government securities?

A) Increase in money supply
B) Decrease in inflation
C) Increase in interest rates
D) Decrease in government spending

Answer 1

When the Fed purchases U.S. government securities, it increases the money supply in the economy. option b is answer

Step-by-step explanation:

An increase in interest rates generally curtails investment and can strengthen the U.S. dollar's exchange rate, damping net exports and shifting the aggregate demand curve to the left, which may slow down economic growth.

This is because when the Fed buys government securities, it pays for them by creating new money. This injected money goes into the banking system, allowing banks to lend more money to individuals and businesses. With more money available to borrow, people are more likely to spend, leading to an increase in the overall money supply. option b is answer