In Order to Increase Its Target for the Federal Funds

question 50

Multiple Choice

In order to increase its target for the federal funds rate, the Fed would normally

• A)conduct open market sales
• B)conduct open market purchases
• C)increase the discount rate
• D)increase reserve requirements

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Definitions:

Earnings Reinvested

Profits that are not paid out as dividends but are instead reinvested in the business to fund growth or pay down debt.

Retention Rate

A metric indicating the percentage of earnings not paid out as dividends but retained by the company for reinvestment.

Plowback Ratio

The proportion of the firm’s earnings reinvested in the business (and therefore not paid out as dividends). The plowback ratio equals 1 minus the dividend payout ratio.

Expected Growth Rate

The anticipated rate at which an investment, economy, or other financial entity will grow over a certain period.