If the Federal Reserve Sells $50 Billion of Short-Term U

question 65

Multiple Choice

If the Federal Reserve sells $50 billion of short-term U.S. Treasury securities to the public, other things held constant, what will this tend to do to short-term security prices and interest rates?

• A)Prices and interest rates will both rise.
• B)Prices will rise and interest rates will decline.
• C)Prices and interest rates will both decline.
• D)Prices will decline and interest rates will rise.
• E)There will be no changes in either prices or interest rates.

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Definitions:

Added Profit

The additional profit gained from making changes to the production process or selling strategy, beyond the usual or expected profit levels.

Fast-Second Strategy

An approach by a dominant firm in which it allows other firms in its industry to bear the risk of innovation and then quickly becomes the second firm to offer any successful new product or adopt any improved production process.

Dominant Firm

A company with a large market share that has the power to influence the price and terms in its industry or market.

Innovations

The process of creating new methods, ideas, or products that bring about significant improvements or advancements.