When the Federal Reserve Fights Inflation Via Open Market Operations

question 39

Multiple Choice

When the Federal Reserve fights inflation via open market operations, the supply of loanable funds curve shifts ________ and the aggregate demand curve shifts ________.

• A) leftward; leftward
• B) leftward; rightward
• C) rightward; leftward
• D) rightward; rightward

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Definitions:

Discount Rate

The interest rate used in discounting future cash flows to present value, often reflecting the cost of capital or risk level.

Present Value

The current worth of a future sum of money or stream of cash flows given a specified rate of return, used in evaluating investment opportunities.

Internal Rate of Return

A financial metric used to evaluate the profitability of an investment, representing the interest rate at which the net present value of all the cash flows (both positive and negative) from a project or investment equal zero.

Required Rate of Return

The minimum annual percentage return a investor expects to achieve from an investment, considering the risk involved.