The Fed Engages in Open Market Operations and Sells Government

question 24

Multiple Choice

The Fed engages in open market operations and sells government securities. The result is

• A) an unchanged federal funds rate because other interest rates did not change.
• B) a lower federal funds rate.
• C) a higher federal funds rate.
• D) More information is needed to determine what happens to the federal funds rate.

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Definitions:

Elastic

A term used to describe a situation where the demand or supply of a good or service is sensitive to changes in price.

Inelastic

A characteristic of goods or services for which demand or supply does not significantly change in response to price changes.

Long Run

A period of time in which all factors of production and costs are variable, allowing for adjustment to changing market conditions.

Short Run

A time period in which at least one input is fixed, limiting the adjustments that a firm can make to its production.