1.67 pts When the Federal Reserve purchases government treasury bonds from commercial banks, we can expect...

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1.67 pts When the Federal Reserve purchases government treasury bonds from commercial banks, we can expect interest rates in

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Answer 1

Answer #1

Answer is A. Decrease; increase.

As the government purchases bonds, government will receive bonds and commercial banks will receive money. It will increase the lending capacity of banks , so lending will increase the money supply.

Increase in money supply will decrease interest rates. Less interest rate will induce investors to invest more.

So interest rate will decrease and investment and household spending will increase.

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Answer 2

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