Under the Fed's Current Interest-Rate-Targeting Approach to Monetary Policy, If

question 273

Multiple Choice

Under the Fed's current interest-rate-targeting approach to monetary policy, if the demand for federal funds by depository institutions increases today, then, other things being equal

• A) the market federal funds rate decreases, and the Fed's Trading Desk responds by selling bonds.
• B) the market federal funds rate increases, and the Fed's Trading Desk responds by buying bonds.
• C) the market federal funds rate decreases, and the Fed's Trading Desk responds by buying bonds.
• D) the market federal funds rate increases, and the Fed's Trading Desk responds by selling bonds.

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Definitions:

Base

A substance that is characterized by its ability to accept protons or donate electron pairs in chemical reactions.

Terminals

The end points of an electrical device or a cable where connections are made to enable the flow of electrical current.

Diode

A semiconductor device that allows current to flow in one direction only, used in electronics for rectification and signaling.

Relay

Any of a number of devices that receives a signal and then effects an action. In vehicle electrical circuits, relays are used to allow a small current circuit to control a large current circuit such as in a starter relay. Also known as a pilot.