If the Fed Lowers the Discount Rate at the Same

question 124

Multiple Choice

If the Fed lowers the discount rate at the same time it conducts an open market sale,it follows that

• A) the money supply will fall.
• B) the money supply will rise.
• C) the money supply will remain unchanged.
• D) cash leakages will rise.
• E) There is not enough information to answer this question.

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Definitions:

Marketable Securities Portfolio

A collection of liquid securities that a company holds, which can easily be converted into cash.

Commercial Paper

An unsecured, short-term debt instrument issued by corporations.

Treasury Bills

Short-term government securities issued at a discount from their face value, maturing in a year or less.

Low Default Risk

A classification for bonds or other forms of debt that are deemed to have a minimal chance of the issuer failing to make the required payments.