If the FOMC Orders a Purchase of Government Securities from Member

question 119

Multiple Choice

If the FOMC orders a purchase of government securities from member banks, where does the FOMC get the money to pay for the securities?

• A)It creates money to pay for the securities by adding the purchase amount to the banks' reserves.
• B)It pays for the securities with new Federal Reserve notes.
• C)It borrows the necessary funds from the Treasury.
• D)It auctions off part of the securities it already owns.

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Definitions:

Curve

In economics, it usually refers to a graphical representation of the relationship between two factors, such as supply and demand, price and quantity, etc.

Line

A straight geometrical figure that extends infinitely in both directions without thickness.

Slope

In mathematics, it is the measure of the steepness or incline of a line, defined as the ratio of the vertical change to the horizontal change between two points on the line.

Positive Economics

A branch of economics that focuses on objective analysis and the description of how the economy functions, as opposed to normative economics that involves value judgments.