The question is asking us to choose the correct option regarding the impact of bond selling by the Federal Reserve.

Expert Solution & Answer

Explanation of Solution

The central bank effectively removes funds from the general citizenry's circulation whenever it issues government bonds. The funds are no longer accessible for investments or employment in consumer expenditure. When the central bank acts in this way, interest rates are likely to rise as a result and the money supply in the economy will decrease.

Thus, the correct option is C.

Chapter 27, Problem 6MCQ

Chapter 27, Problem 1FRQ

Chapter 27 Solutions

Krugman's Economics For The Ap® Course

Ch. 27 - Prob. 1CYU Ch. 27 - Prob. 1MCQ Ch. 27 - Prob. 2MCQ Ch. 27 - Prob. 3MCQ Ch. 27 - Prob. 4MCQ Ch. 27 - Prob. 5MCQ Ch. 27 - Prob. 6MCQ Ch. 27 - Prob. 7MCQ Ch. 27 - Prob. 1FRQ Ch. 27 - Prob. 2FRQ

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