Suppose That the Fed Makes a $100 Billion Open-Market Sale

Multiple Choice

Suppose that the Fed makes a $100 billion open-market sale of Treasury bonds, and the money multiplier is 6. Which of the following impacts are most likely to result?

A) The money supply shifts inward, and the equilibrium interest rate rises in the money market.
B) The money supply shifts outward, and the equilibrium interest rate falls in the money market.
C) Investment declines, causing the aggregate demand curve to shift leftward, reducing equilibrium real GDP and thus slowing the economy.
D) Both a. and c. are correct.
E) Both b. and c. above are correct.