If the Fed Buys $2 Billion of Short-Term Securities Issued

question 73

Multiple Choice

If the Fed buys $2 billion of short-term securities issued by the government of Japan and pays for them by writing a check for $2 billion

• A) its assets will rise by $2 billion and the monetary base will rise by $2 billion.
• B) its assets will fall by $2 billion and the monetary base will fall by $2 billion.
• C) its assets will rise by $2 billion and the monetary base will fall by $2 billion.
• D) its assets will fall by $2 billion and the monetary base will rise by $2 billion.

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Definitions:

Incremental Value

It is the additional value generated by an investment, project, or action over the current baseline or alternative options.

All-Equity Firms

Companies that finance their operations exclusively through equity without any debt.

Net Present Value

Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows over a period of time.

Net Present Value

The difference between the present value of cash inflows and outflows over a period, used to evaluate the profitability of an investment.