Asked by Nicole Jamison on May 07, 2024
Verified
When the Federal Reserve buys U.S.government securities on the open market,it drives bond prices ____ and drives interest rates ___.
A) up;up
B) down;down
C) up;down
D) down;up
U.S. Government Securities
Financial instruments issued by the United States Department of the Treasury to finance government spending, including bonds, bills, and notes.
Open Market
A freely competitive market in which any buyer or seller may participate and where transactions are not restrictively regulated by government.
Interest Rates
The percentage of a loan that is charged to the borrower as interest, usually presented as an annual rate of the remaining loan balance.
- Acquire knowledge on how open market operations, reserve requirements, and the money supply are interrelated.
Verified Answer
RR
Renae RemmeleMay 14, 2024
Final Answer :
C
Explanation :
When the Federal Reserve buys U.S. government securities on the open market, it increases the demand for those securities, which drives their prices up. As bond prices increase, their yields (interest rates) fall, since the amount paid in interest remains fixed.
Learning Objectives
- Acquire knowledge on how open market operations, reserve requirements, and the money supply are interrelated.