When the Fed Sells a Bond, It

question 24

Multiple Choice

When the Fed sells a bond, it

• A) removes money from circulation, equivalent to the value of the bond.
• B) deposits the money it receives from the sale in one of its member banks.
• C) invests the proceeds in the stock market to aid economic development.
• D) increases the amount of money available to make loans and buy goods.
• E) uses the profits to decrease the federal debt.

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Definitions:

Substitutes

Goods or services that can be used in place of one another. When the price of one rises, the demand for its substitute is likely to increase.

Elastic

Describes a situation in which the supply or demand for a good or service is highly responsive to changes in price.

Long Run

A period in economic analysis where all factors of production and costs are variable, allowing for full adjustment to changes in the market or economy.

Short Run

A period in economic theory during which at least one factor of production is fixed, limiting the capacity to adjust to changes in market demand.