When the Fed Buys Bonds Through Open Market Operations, It

question 27

Multiple Choice

When the Fed buys bonds through open market operations, it gives banks money in return, which:

• A) increases their ability to lend, and increases aggregate demand.
• B) decreases their ability to lend, and increases aggregate demand.
• C) increases their ability to lend, and decreases aggregate demand.
• D) decreases their ability to lend, and decreases aggregate demand.

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Definitions:

Current Yield

The annual income (interest or dividends) received from an investment divided by the current price of the security.

Coupon

The interest rate on a bond paid by the issuer to the bondholder, typically on a periodic basis.

Quoted

Refers to the listed price of a security or asset in the financial market.