Question

"The Federal Reserve has been aggressively expanding the money supply by using repurchase agreements in its open market operations. Ignoring other factors, this is likely to result in:"

Answer 1

Answer: Increased Inflation and Reduced Interest Rates.

Step-by-step explanation:

If the Fed is increasing the monetary supply in the Economy through Open Market Operations it will have the effect of increasing inflation.

A higher amount of money in the Economy usually leads to an increase in inflation because more people have money in their hands and as a result Demand increases. If supply remains the same the prices must increase.

Interest rates however will reduce because there is now a high supply of money in the Economy. Higher supply means lower price to get money which is the interest rate.