Question

"If the Federal Reserve Open Market Committee authorizes its trading desk to enter into system wide repurchase agreements, the effect will be to:"

Answer 1

Answer:

increase yields and lower debt prices

Explanation:

In a given situation like this, it implies that the Federal Reserve trading desk is temporarily selling government securities to the dealers, for the purpose of sapping them of cash. This reduces free reserves which can be given out as loans by the banks. In return, it results in a raise market interest, given that the funds are not readily available. Hence, when the interest rates rise, debt prices will fall. This type of action is taken if the government believes the economy is growing too faster than desired.

Therefore, the correct answer is "increase yields and lower debt prices"