If the Fed buys government bonds in the open market,
A. interest rates will rise and investment spending will decrease.
B. interest rates and investment spending will remain unchanged but inflation will increase.
C. interest rates will fall and investment spending will increase.
D. banks' excess reserves will be reduced and loans will be called in, leading to an increase in bankruptcies.
C. interest rates will fall and investment spending will increase.
You might also like to view...
The reversal of fortune is strong evidence against the:
A) religious hypothesis of economic prosperity. B) geography hypothesis of economic prosperity. C) culture hypothesis of economic prosperity. D) institutions hypothesis of economic prosperity.
The real interest rate is defined as the:
A. actual interest rate. B. fixed-rate on consumer loans. C. nominal interest rate minus the inflation rate. D. expected interest rate minus the inflation rate.