Microeconomics When the Fed Sells Bonds, This

Microeconomics When the Fed sells bonds, this should: increase the Federal funds rate. reduce the reserve requirement. increase the discount rate. decrease the discount rate. Suppose excess reserves in the banking system change from $100 to $110. Other things equal, we might expect this change to: reduce the discount rate. reduce the Federal funds rate. raise the reserve requirement d. reduce the prime rate. If the Fed funds rate is 6% and Fed's target for the Fed funds rate is 4%, then the Fed is most likely to: reduce the reserve requirement.

sell government bonds. raise the discount rate. raise the reserve requirement. Suppose that investment is not very responsive to interest rates, so that a sizable increase in interest rates has only a minor effect on investment. In this case, contractionary monetary policy would: a. have no effect on output. b. reduce output slightly. c. reduce output significantly. d. raise output significantly. Which of the following is a problem for the Fed? a. Knowing what policy to use. b. Inability to control the monetary base. c. Budget cuts threatened by Congress.

d. Political pressure from the public. A liquidity trap is best described as a situation in which: a. increasing reserves does not increase the money supply. b. lowering interest rates leads to greater bankruptcies. c. higher interest rates crowd out private investment. d. increases in the velocity of money raise the money supply without Fed action.

If a decrease in the money supply decreases inflationary expectations, what is likely to happen to interest rates, and why? Interest rates will go up or remain stable, as consumers will need less incentive to save money, the FED will see less of a need to raise interest rates to encourage saving and take money out of an economy that is expanding too rapidly. The price of a nonmaturing bond (called a consol) is Pb.

The equation that indicates this price is = I/r, where I is the annual net income the bond generates and r is the market nominal interest rate. Suppose that the initial market interest rate is 5% and at this interest rate, you have decided to hold half of your financial wealth as bonds and half as holding of non-interest-bearing money. You notice that the market interest rate is starting to rise, however, and you become convinced that it.