How will the following events affect the equilibrium level of interest rates and the amount of borrowing and lending activity in U.S. capital markets? (Consider the effects of the events in Parts A and B separately, when answering those parts. Consider the combined impact of the two events in Part C.
A. Consumer spending and business investment slows, resulting in a decrease in new loan applications.
B. The U.S. Federal Reserve Bank buys $XYZ billion in U.S. Treasury securities as part of its open market operations.
C. What will happen to interest rates (and borrowing/lending activity) if the events in A. and B. happen at the same time?
D. Why might the Fed pursue the policy action in Part B in response to the event in Part A?