Question

Suppose the Federal Reserve (the Fed) announces that it is raising its target interest rate by 50 basis points, or 0.50%. It would achieve this by _____________________: The sequence of events that results in a new equilibrium interest rate, after the Fed makes the change you selected, may be described as follows: Because there is ____________ in the financial system the quantity of money demanded __________.

Answer 1

Answer: decreasing money supply; less; decreases.

Explanation:

When the Federal Reserve wants to increase its target interest rate by 50 basis points, this can be done if the Fed reduces the money supply that is in circulation.

This will in turn, lead to a new equilibrium rate and there will also be a decrease in money in the financial system as there'll be a reduction in the quantity of money demanded.