Suppose the Fed Wishes to Make Only a Small Change

question 142

Multiple Choice

Suppose the Fed wishes to make only a small change in the money supply.Which of its policy tools is it most likely to use?

• A)the prime interest rate
• B)loans made to the public
• C)Fed Fund Rate
• D)open market operations
• E)the required reserve ratio

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Definitions:

Capital Structure

The composition of a company’s debt and equity used to finance its overall operations and growth.

Market Risk Premium

The additional return an investor requires from a market portfolio over the risk-free rate, compensating for the risk of the investment.

Financial Leverage

The use of borrowed funds to increase the potential return on an investment.

Shareholder Leverage

The use of borrowed funds by shareholders to increase their potential returns from an investment.