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:

Inferior Good

A type of good for which demand decreases when consumers' income increases, opposite to normal goods.

Perfectly Inelastic

Describes a situation where the demand for a good does not change in response to a change in price.

Price Elasticity

A measure of how much the quantity demanded of a good responds to a change in the price of that good, defined as the percentage change in quantity demanded divided by the percentage change in price.

Demand Curve

A diagram displaying the connection between a product or service's price and the amount requested over a specified timeframe.