If the Fed Buys $2 Billion of Short-Term Securities Issued

question 48

Multiple Choice

If the Fed buys $2 billion of short-term securities issued by the government of Japan and pays for them by writing a check for $2 billion

• A) its assets will rise by $2 billion and its liabilities will fall by $2 billion.
• B) its assets will fall by $2 billion and its liabilities will rise by $2 billion.
• C) its assets and liabilities will both fall by $2 billion.
• D) its assets and liabilities will both rise by $2 billion.

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Definitions:

Retained Earnings

The portion of net income that is not distributed to shareholders but instead retained by the company to reinvest in its core business or to pay debt.

Treasury Stock

Shares that were once part of the outstanding stock but were bought back by the issuing company, reducing the amount of outstanding stock.

Preferred Stock

Preferred stock is a class of shares that offers dividends and ownership in a company but typically does not confer voting rights, with dividends received before common shareholders.

Par Value

The nominal or face value of a bond, share of stock, or coupon as indicated on a certificate or instrument.