-Assume an Original Balance Sheet: Refer to Table 14

question 8

Multiple Choice

-Assume an original balance sheet: Refer to Table 14.1.If the Fed buys $10 billion in bonds from the public,all of the following are true except

• A)The public will still hold $990 billion worth of bonds.
• B)M1 will increase initially by $10 billion.
• C)The discount rate will rise.

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Definitions:

Mortgage-Backed

Mortgage-backed refers to securities that are secured or backed by mortgage loans, allowing investors to receive payments derived from the principal and interest payments made by borrowers.

Money Market

The section of the financial market dealing with the lending and borrowing of short-term funds, including treasury bills, commercial paper, and certificates of deposit.

Repurchase Agreements

Short-term loans where a borrower sells securities to a lender with an agreement to buy them back at a higher price at a future date.

Commercial Paper

An unsecured, short-term debt instrument issued by a corporation, typically used for the financing of payroll, accounts payable, and inventories.