If the Fed Is Increasing Its Holdings of Government Bonds

question 156

Multiple Choice

If the Fed is increasing its holdings of government bonds at the same time the federal deficit is increasing,

• A)the Fed and the Treasury are, as usual, coordinating activities.
• B)crowding out is more likely to occur.
• C)the debt is being monetized.
• D)the Fed is attempting to increase interest rates.

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Definitions:

Non-interest-bearing Notes

Debt instruments that do not accrue interest over time, thus repaid at their face value.

Incremental Borrowing Rate

The interest rate a lessee would have to pay to borrow over a similar term the funds necessary to purchase or lease an asset.

Non-interest-bearing Note

A promissory note in which no interest is earned or paid over the life of the note, with the borrower repaying only the face value of the note.