Answered

The price level falls. This might be because the Federal Reserve:

A. Sold bonds which reduced the money supply.
B. Bought bonds which raised the money supply.
C. Sold bonds which raised the money supply.
D. Bought bonds which reduced the money supply.



Answer :

GinnyAnswer

Final answer:

The Federal Reserve's selling of bonds leads to a decrease in the money supply and, consequently, a decrease in the price level.


Explanation:

When the Federal Reserve conducts a contractionary open-market operation, it sells bonds, resulting in a decrease in the money supply. This action leads to a decrease in the price level. Conversely, if the Federal Reserve buys bonds, it increases the money supply, which can lead to an increase in the price level.


Learn more about Federal Reserve's monetary policy operations here:

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