The figure above shows the market for bank reserves in Futureland. If the Bank of Futureland undertakes an open market purchase of government securities that changes the quantity of reserves by $25 billion, then the federal funds rate will
A) fall to 4 percent a year.
B) remain at 6 percent a year.
C) rise to 8 percent a year.
D) change, but more information is needed to determine by how much.
E) None of the above answers is correct.
A
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In an environment characterized by perfect competition, we expect that ________
A) there are very few firms in the economy B) there are many firms in the economy but a very few have the lion's share of the industry C) the are many small firms in the economy and every single firm is a price taker D) the government sets prices for all firms E) none of the above
If workers push for wages that are beyond what productivity gains can justify ________
A) a temporary negative supply shock ensues driving up prices B) a negative output gap ensues which will lead to higher unemployment if the Federal Reserve does not act C) and the Federal Reserve eases monetary policy aimed at increasing aggregate demand to counter the negative supply shock, a price-wage spiral could ensue D) all of the above E) none of the above