Question 6 of 20 The Federal Reserve can cause interest rates on mortgages to decrease by:
A. establishing new Federal Reserve bank districts.
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B. buying large volumes of treasury securities on the open market.
C. ordering banks to decrease their prime rate on loans.
D. lowering the discount rate on short-term loans to banks.
SUBMIT

B. buying large volumes of treasury securities on the open market.

Explanation:

The main monetary policy tool of the Federal Reserve are open market operations, this consists in the Fed buying and selling of securities in the open market.

If the Fed buys large volumes of securities in the open market, it will print currency to pay for these securities. These money enters the banking system, and form then, the economy as a whole. This larger money supply lowers the interest rates accross the economy, including the interest on mortgages.