When the Federal Reserve Sells a Government Security to a Bond

question 46

Multiple Choice

When the Federal Reserve sells a government security to a bond dealer, which transmits payment from a transactions deposit account at a bank

• A) the cash of the Federal Reserve will decrease.
• B) the net worth of the commercial bank will decrease.
• C) the loans of the commercial bank will increase.
• D) the money supply will decrease.

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Definitions:

Market Value

The current price at which an asset or service can be bought or sold.

Annual Net Cash Flows

The total amount of money that flows into and out of a business over a year, after all revenues are collected and expenses are paid.

Marginal Tax Rate

The rate at which an additional dollar of income is taxed, indicating the tax impact on your next dollar earned.

Depreciation

The accounting method of allocating the cost of a tangible or physical asset over its useful life.