Asked by David Torrez on Jul 12, 2024
Verified
Which of the following will be an effect of the Fed selling open market securities?
A) Business investment will be discouraged.
B) Household savings will be discouraged.
C) Household consumption will be encouraged.
D) None of the choices are correct.
Open Market Securities
Financial instruments such as bonds or stocks that are traded freely on the open market and can be bought and sold by investors.
Fed
Short for the Federal Reserve, which is the central banking system of the United States, responsible for monetary policy.
Business Investment
The act of allocating resources, usually in the form of capital, to create, expand, or improve a business's assets.
- Grasp the functioning of open market operations and their role in monetary policy.
Verified Answer
AF
Ashlee FortenberryJul 17, 2024
Final Answer :
A
Explanation :
When the Fed sells open market securities, it decreases the amount of reserves held by banks. This leads to an increase in interest rates as banks compete to borrow from the remaining pool of reserves. Higher interest rates can discourage business investment, as it becomes more expensive to borrow money for projects and expansions.
Learning Objectives
- Grasp the functioning of open market operations and their role in monetary policy.