Question

Suppose the U.S. Treasury issued $50 billion of short-term securities and sold them to the public. Other things held constant, what would be the most likely effect on short-term securities' prices and interest rates?A. Prices and interest rates would both rise.
B. Prices would rise and interest rates would decline.
C. Prices and interest rates would both decline.
D. Prices would decline and interest rates would rise.
E. There is no reason to expect a change in either prices or interest rates.

Answer 1

Answer:

D. Prices would decline and interest rates would rise.

Explanation:

Suppose the U.S. Treasury issued $50 billion of short-term securities and sold them to the public. Other things held constant.

Due to the increase in the supply/availability of securities, prices of securities will decline but interest rates on them will increase.