If the Federal Reserve sells $50 billion of short-term U.S. Treasury securities

Question

If the Federal Reserve sells $50 billion of short-term U.S. Treasury securities to the public, other things held constant, what would be the most likely effect on short-term securities prices and interest rates?

There is no reason to expect a change in either prices or interest rates.

Prices and interest rates will both decline.

Prices will rise and interest rates will decline.

Prices and interest rates will both rise.

Prices will decline and interest rates will rise.

a)

There is no reason to expect a change in either prices or interest rates.

b)

Prices and interest rates will both decline.

c)

Prices will rise and interest rates will decline.

d)

Prices and interest rates will both rise.

e)

Prices will decline and interest rates will rise.

Explanation / Answer

The effect of selling short term treasury securities will be that price of securities will fall down and due to inverse relationship between price and interest o securities, the interest rate will increase.

So, the answer is “ E - Prices will decline and interest rates will rise.

Related Questions

Navigate

• Browse (All)
• Browse I
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.