Suppose the Fed Conducts an Open Market Purchase of Bonds

question 57

Multiple Choice

Suppose the Fed conducts an open market purchase of bonds. This monetary policy action will tend to cause

• A) the price of bonds to increase, and the interest rate to increase.
• B) the price of bonds to increase, and the interest rate to decrease.
• C) the price of bonds to decrease, and the interest rate to increase.
• D) the price of bonds to decrease, and the interest rate to decrease.

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Definitions:

Many Sellers

A characteristic of competitive markets where a large number of sellers offer similar or identical products, preventing any single seller from influencing market prices.

Distinguish

To recognize or treat someone or something as different from others.

Marginal Cost

The increase in total production costs resulting from the production of one additional unit of a product or service.

Average Total Cost

The total cost of production divided by the quantity of output produced, representing the average cost per unit of output.