If the Federal Reserve Simultaneously Sells Government Bonds in the Open

question 14

Multiple Choice

If the Federal Reserve simultaneously sells government bonds in the open market and raises reserve requirements,the

• A)money supply will increase.
• B)money supply will decrease.
• C)money supply will stay the same.
• D)two tools will work against one another and the net effect on the money supply is uncertain.

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Definitions:

Offset Conditions

Conditions that allow entities to negate or counterbalance one position with another, commonly used in accounting and finance to manage risk or net-off liabilities against assets.

Different Financial Instruments

Various types of investment assets, including stocks, bonds, derivatives, and mutual funds, that provide a way for individuals and businesses to invest, finance operations, or manage risk.

Financial Instrument

A contract that leads to the creation of a financial asset for one party and results in a financial liability or equity instrument for another party.

Market Risk

The risk that the value of a financial instrument will fluctuate because of changes in foreign exchange rates, market interest rates or some other market prices.