An open market sale of government securities by the Fed has a tendency to:?

a) shift the supply curve for bonds to the left, increase the price of bonds and the interest rate.

(b) shift the supply curve for bonds to the left, increase the price of bonds and decrease the interest rates.

(c) shift the supply curve for bonds to the right, decrease the price of bonds and increase the interest rates.

(d) shift the supply curve for bonds to the right, decrease the price of bonds and the interest rate.

Answer:
When the Fed sells bond it will increase the supply of bonds. The supply curve will shift to the right. The result will be that the Price of bonds will decrease. Since the bonds are being sold it will decrease the money supply in the Money market, so it will increase interest rates.
So C
B. Only way the economy will stay steady
Open market activity in the form of selling bonds will of course increase the supply of bonds in the market. Selling bonds is used to decrease the money supply. Interest is the cost of borrowing money and since the supply of money is lower the cost to borrow it is higher. Therefore "C" should be correct.

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