Question

When the Fed announces that it is raising interest rates, this signals its intention to _______ bonds in the open market and _______ the money supply.

Answer 1

Answer:

Sell; Reduced

Explanation:

Open market operation is one of the monetary policy instrument in which there is a buying and selling of government bonds in the market.

OMO is also used for controlling the money supply in an economy.

If fed increases the interest rate on bonds then as a result people wants to purchase bonds for earning higher returns.

This clearly shows the intention of fed to sell bonds to the public and hence, there is a flow of cash from the public to fed which will reduce the money supply in an economy.