Question 4 When bond prices of previously issued government bonds fall, the yiel

Question

Question 4

When bond prices of previously issued government bonds fall, the yield or interest rate

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rises.

stays the same.

falls.

Question 6

Assume there are no excess reserves in the banking system initially, the required reserve ratio is 16.7% (or 1/6), and the Federal Reserve buys $100,000 worth of government securities in the open market. As a result of this action by the Fed, the M1 measure of the money supply can ultimately

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decrease by up to $600,000.

increase by up to $600,000.

decrease by up to $100,000.

increase by $83,333.

8) Suppose the Fed buys a $100,000 worth of U.S. Treasury bonds from the XYZ Pension Fund, a member of the public. It pays XYZ with a check. The check is deposited to XYZ’s checking account at a commercical bank. This money

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raises the reserves at The Fed

lowers reserves at the commercial bank, and now the bank must make fewer and smaller loans.

raises reserves at the commercial bank, and now the bank will be able to make more loans.

Question 4

Explanation / Answer

1. A is Correct Bond Prices are Inversely Proportional to Interest Rates.

2. 83.33333%(1-.166667) will be the money factor therefore increase by $83,333 Hence D is Correct

3. B is Correct Amount in Checking deposits will reduce the reserves and the money is not available for lending.

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