Which of the Following Best Describes What Occurs When Monetary

question 233

Multiple Choice

Which of the following best describes what occurs when monetary authorities sell government securities?

• A)There is a decrease in the size of chartered banks' excess reserves, the money supply increases, and interest rates fall, thereby causing a decrease in investment spending and real GDP.
• B)There is a decrease in the size of chartered banks' excess reserves, the money supply decreases, and the interest rates rise, thereby causing a decrease in investment spending and real GDP.
• C)There is a decrease in the size of chartered banks' excess reserves, the money supply decreases, and interest rates rise, thereby causing an increase in investment spending and real GDP.
• D)There is an increase in the size of chartered bank reserves, the money supply increases, and interest rates fall, thereby causing an increase in investment spending and real GDP.

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Definitions:

Growth Rates

Measures of how much a particular variable, such as population, sales, or GDP, has increased over a specified period of time.

Treasury Bill Rate

The Treasury bill rate is the yield or return on investment for U.S. government debt securities known as Treasury bills, which have short-term maturities.

Cost of Equity

The return a company needs to generate to compensate its equity investors, often calculated using models like the Capital Asset Pricing Model (CAPM).

Financing

The process of providing or obtaining funds for business activities, making purchases, or investing.