Suppose an Individual Sells $500 Worth of Securities to the Fed

question 68

Multiple Choice

Suppose an individual sells $500 worth of securities to the Fed and puts the proceeds of this sale under his mattress.Then,

• A)the money supply will be unaffected.
• B)the money supply will rise by $500.
• C)the supply of high-powered money will rise by $500 but nothing will happen to the money supply.
• D)demand deposits will rise by some multiple of $500,depending on the bank reserve-holding ratio.

---

Definitions:

Accounting Information

Data related to the financial transactions and status of an organization, used for analysis, reporting, and decision making.

Relevance

The importance of information in decision-making; it must be timely and have predictive and confirmatory value.

Going Concern Assumption

The accounting principle that a company will continue to operate indefinitely, without the intention or necessity of liquidation.

Foreseeable Future

A concept in accounting referring to the period during which a business is expected to continue its operations without significant change.