Question

If the Federal Reserve wants interest rates to decrease, it will buy government bonds. True False

If the Federal Reserve wants interest rates to decrease, it will buy government bonds.

True

False

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Answer #1

True.

Generally Federal reserve adopts two type of policies that are expansionary monetary policy and contractionary monetary policy

In expansionary monetary policy that the target is to increase the money supply in the economy

For this the Federal reserve buys the government bond

This will cause the decrease in the interest rate and lending rate to the commercial banks and overall increase of the money supply in the economy

Opposite to it happens in terms of contractionary monetary policy when the goal is to reduce the money supply

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