When the Federal Reserve sells government securities on the open market, what effect does this action have on the nation’s money supply and interest rates? A) Money Supply - Decreases / Interest Rates - Increase B) Money Supply - Increases / Interest Rates - Increase C) Money Supply - Decreases / Interest Rates - Decrease D) Money Supply - Increases / Interest Rates - Decrease

C) Money Supply - Decreases / Interest Rates - Decrease

Explanation:

If it sells bonds on the open market, it will result in a decrease in the money supply. Here's why. Purchase of bonds means the Fed buys a U.S. government Treasury bond from one of its primary dealers. This includes one of twenty-three financial institutions authorized to conduct trades with the Fed.

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