Author Question: What happens to the price of bonds when the Fed is selling bonds? What happens to the interest rate? ... (Read 146 times)

jjjetplane · **on:** Jun 29, 2018

What happens to the price of bonds when the Fed is selling bonds? What happens to the interest rate? What happens to the money supply?

What will be an ideal response?

Question 2

When money serves as a standard for comparing values of different things, it is functioning as a

A) store of value.
B) hedge against inflation.
C) standard of deferred payment.
D) unit of accounting.

AISCAMPING · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

If the Fed sells bonds, the supply of bonds in the market increases, causing the price of bonds to fall. Since the price of bonds is inversely related to the interest rate, the interest rate increases. The Fed sells bonds to reduce the money supply.

Answer to Question 2

D