What happens to the price of bonds when the Fed is selling bonds? What happens to the interest rate? What happens to the money supply?
What will be an ideal response?
If the Fed sells bonds, the supply of bonds in the market increases, causing the price of bonds to fall. Since the price of bonds is inversely related to the interest rate, the interest rate increases. The Fed sells bonds to reduce the money supply.
You might also like to view...
The more interest-sensitive is money demand, the
A) more effective is fiscal policy relative to monetary policy. B) more effective is monetary policy relative to fiscal policy. C) steeper is the IS curve. D) steeper is the LM curve.
In a two-player simultaneous game where neither player has a dominant strategy,
A) there is never a Nash equilibrium. B) there is only one Nash equilibrium. C) the actual outcome is unpredictable. D) the actual outcome will not be a Nash equilibrium.
Which of the following is a statement of positive economics?
a. Too much government spending is the biggest problem facing the U.S. economy. b. Creating jobs is the most serious problem facing the U.S. economy. c. Raising taxes provides additional revenue that should be used to finance health care. d. If taxes are over 50 percent of national income, job creation falls.
Which of the following would reflect the transactions demand for money?
A. Keeping funds in your savings account because the interest rate looks relatively attractive B. Selling common stocks you own and increasing the money in your savings account because you think stock prices will fall soon C. Keeping funds in your checking account to pay your rent D. Buying a U.S. Treasury security using funds from your checking account