If the interest rate is above the Fed's target, the Fed should

Question

a.

buy bonds to increase the money supply.
b.

sell bonds to decrease the money supply.
c.

buy bonds to decrease the money supply.
d.

sell bonds to increase the money supply.

Answer 1

If the interest rate is above the Fed's target, the Fed should:

a. buy bonds to increase the money supply.

Buying bonds injects money into the economy, which can help lower interest rates back toward the target level by increasing the money supply.