Asked by Bryanna Garcia on Jun 03, 2024
Verified
When the Federal Reserve sells 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
Securities
Financial instruments representing ownership (stocks), a creditor relationship with a government or corporation (bonds), or other rights to ownership or profit.
Open Market
A marketplace that is open to all participants, where buyers and sellers engage in trade without significant restrictions or regulations.
Interest Rates
The percentage of a sum of money charged for its use, often expressed annually.
- Master the concept of the relationship connecting open market operations, reserve requirements, and the supply of money.
Verified Answer
HT
Huynh Tan Dung SE130604Jun 06, 2024
Final Answer :
D
Explanation :
When the Federal Reserve sells securities on the open market, it increases the supply of bonds, which lowers their price. When bond prices fall, interest rates rise, because the yield on the bonds will need to increase to attract buyers. Therefore, the correct choice is D: down; up.
Learning Objectives
- Master the concept of the relationship connecting open market operations, reserve requirements, and the supply of money.