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?
Money Supply - Decreases / Interest Rates - Increase
Money Supply - Increases / Interest Rates - Increase
Money Supply - Decreases / Interest Rates - Decrease
Money Supply - Increases / Interest Rates - Decrease

Money Supply - Decreases / Interest Rates - Increase

Explanation:

Open market sells are contractionary monetary policy measures that aim are reducing inflationary pressures. The Federal reserves undertake monetary policy to achieve stable prices and steady economic growth.

Open market operations involve the Fed selling treasury bills to the banks and other financial institutions. The banks are expected to pay for the treasury bills using customers. Usually, banks issue out the customer deposits to firms, and households are loans. Open market sales results in banks unable to issue out many loans as most of the customer deposits are used to pay for the treasury bills. Banks will have limited cash for loans leading to a decrease in the money supply. Demand for loans exceeds supply resulting in an increase in interest rates.

answer; niosh, the national institute for occupational safety and health;