Question

As the Federal Reserve sells bonds

interest rates fall and the price of bonds rises

interest rates fall and the price of bonds falls.

interest rates rise and the price of bonds rises

interest rates rise and the price of bonds falls.

Answer 1

When the Federal reserve sell bonds, then money supply decreases from the economy, so the money supply curve shifts leftward. Hence the equilibrium interest rate increases and quantity decreases.

Since bond prices and interest rate are inversely related. Hence the bond price decreases.

It means interest rate rise and bond price falls.

As the Federal Reserve sells bonds interest rates rise and the price of bonds falls.

Hence option fourth is the correct answer.