An Appropriate Policy Response by a Central Bank to an Increase

question 29

Multiple Choice

An appropriate policy response by a central bank to an increase in the inflation rate is to

• A)increase bank reserves
• B)lower the federal funds rate
• C)buy government bonds from the public
• D)sell government bonds to the public
• E)none of the above

---

Definitions:

Fair Value

The estimated price at which an asset or liability could be traded in a fair transaction between willing parties.

Held-to-maturity Securities

Financial instruments that a company has the intent and ability to hold until they mature.

Interest Revenue

Income earned from lending funds or investing in interest-bearing financial instruments.

Fair Value Adjustment

An accounting practice of updating the book value of assets and liabilities to reflect their current market values.