CFA Practice Question

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CFA Practice Question

If the Federal Reserve wants to lower the inflation rate, it will ______ the federal funds rate by undertaking open market ______ of government securities.
A. lower; sales
B. raise; sales
C. raise; purchases
Explanation: When the Fed sells securities in the open market, it reduces bank reserves. The reduced money supply will increase the interest rate.

User Contributed Comments 2

User Comment
janlr But it wants to lower interest rates not increase!
jyoti janlr: it wants to lower the inflation rate, not interest rate.
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