If the Fed Purchases Government Securities in the Open Market,_____

question 6

Multiple Choice

If the Fed purchases government securities in the open market,_____.

• A)the money supply will decrease
• B)the money supply will increase only if the seller of those securities is a commercial bank
• C)the money demand will increase immediately
• D)the money demand will decrease immediately
• E)the money supply will increase through the commercial banking system regardless of who the seller is

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Definitions:

Average Rate Of Return Method

An investment appraisal technique that calculates the expected return of an investment by averaging its annual profits and dividing by its initial cost.

Net Present Value Method

A method used in capital budgeting and investment planning that calculates the difference between the present value of cash inflows and the present value of cash outflows over a period of time.

Net Present Value Method

A financial analysis tool used to determine the attractiveness of an investment by calculating the present value of its future cash flows.

Present Values

The present-day worth of a future sum of money or continual cash flows, using a particular rate of return for calculation.