If the Fed Sells Bonds And, Thereby, Unexpectedly Shifts to a More

question 46

Multiple Choice

If the Fed sells bonds and, thereby, unexpectedly shifts to a more restrictive monetary policy, in the short run, the primary impact of this policy will tend to

• A) increase inflation.
• B) reduce unemployment.
• C) increase real output.
• D) increase real interest rates.

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Definitions:

Discount Rate

This term is used in various contexts but generally refers to the interest rate used in discounted cash flow analysis to determine the present value of future cash flows.

Present Value

The present worth of a future total amount of money or series of cash inflow, based on a particular return rate.

Lump Sum

A single payment made at a particular time, as opposed to multiple payments made over time.

Interest Rate

The proportion of a loan that is charged as interest to the borrower, typically expressed as an annual percentage of the loan outstanding.