If the Federal Reserve System buys government securities,Multiple Choicethe money supply will not change.interest rates on the securities will not change.interest rates on the securities will fall.the equilibrium price of the securities purchased will fall.
Question
If the Federal Reserve System buys government securities,Multiple Choicethe money supply will not change.interest rates on the securities will not change.interest rates on the securities will fall.the equilibrium price of the securities purchased will fall.
Solution
When the Federal Reserve System buys government securities, it essentially injects more money into the economy. This increases the money supply. As a result, the demand for these securities increases, which in turn increases their price. When the price of a security increases, its yield or interest rate falls (as the price and yield of a security move in opposite directions). Therefore, the correct answer is "interest rates on the securities will fall."
Similar Questions
When the Reserve Bank sells government securities, the banks'Group of answer choicesreserves will increase and lending will contract, causing no change in the money supply.reserves/deposit ratio will increase and lending will expand, causing an increase in the money supply.reserves will decrease and lending will contract, causing a decrease in the money supply.reserve requirements will increase and lending will contract, causing a decrease in the money supply.reserves will increase and lending will expand, causing an increase in the money supply.
What is one outcome the Federal Reserve might want to produce when purchasing government securities?Responsesincreasing interest ratesincreasing interest ratesreducing the money supplyreducing the money supplyfostering economic expansionfostering economic expansionfostering economic contractionfostering economic contraction
What will happen in the money market if the Federal Reserve decreases the discount rate?Multiple choice question.Banks borrow more from the Fed and make more loans, causing the money supply to increase.Banks borrow less from the Fed and make fewer loans, causing the money supply to decrease.Banks borrow more from the Fed and make more loans, causing the money supply to decrease.Banks borrow less from the Fed and make fewer loans, causing the money supply to increase.
When the central bank purchases government securities from the open market, what impact does it have on the money supply and interest rates? A. Increases the money supply; increases interest rates B. Decreases the money supply; decreases interest rates C. Increases the money supply; decreases interest rates D. Decreases the money supply; increases interest rates
The actual change in the money supply as a result of an increase in excess reserves will be less than the maximum change if banksGroup of answer choicesdo not lend out all of their excess reservesborrow from the Federal Reservesell some of their government securities to the Federal Reservelend only their excess reserves
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