Question

Starting from a​ short-run equilibrium, when the Fed decreases the quantity of​ money, _______. A. the quantity of unplanned reserves in the economy increases and banks make more loans B. people enter the loanable funds market and buy bonds C. banks conduct an open market operation and sell Treasury bills D. people enter the loanable funds market and sell bonds

Answer 1

The correct answer is A) the quantity of unplanned reserves in the economy increases and banks make more loans available.

Step-by-step explanation:

Monetary policy always affects interest rates and the available quantity of loanable funds, which in turn affects several components of aggregate demand.

Loose or expansionary monetary policy as obtains in the question above, usually leads to lower interest rates and a higher quantity of loanable funds will tend to increase business investment and consumer borrowing for big-ticket items.

They increase liquidity by giving banks more money to lend. Banks lower interest rates, making loans cheaper.

Cheers!

Answer 2

C

Step-by-step explanation:

To decrease the quantity of money in the market the Fed will sell bonds in open market operation and that will increase the interrest rate and decrease the money supply in the market.