If the Fed Wants to Increase the Federal Funds Rate

question 3

Multiple Choice

If the Fed wants to increase the federal funds rate through open market operations,it will ________.

• A) sell bonds
• B) buy bonds
• C) increase the quantity of required reserves
• D) decrease the interest rate paid on borrowed reserves held at the Fed

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Definitions:

Marginal Revenue Curve

A visual representation that shows the additional revenue generated by selling one more unit of a good or service.

Collude

To engage in a secret or illegal cooperation or conspiracy, especially in order to cheat or deceive others.

Perfectly Competitive

A market structure characterized by many buyers and sellers, freedom of entry and exit, homogeneous products, and perfect information.

Marginal Cost

The alteration in the overall cost of production that occurs with each additional unit produced.