Refer to the given figure where the nominal interest rate equals 6 percent and the money supply equals 600. If the Federal Reserve wants to set the nominal interest rate at 10 percent, it must conduct open market ________ to set the money supply at ________.
A)purchases; 200
B)sales; 200
C)purchases; 800
D)sales; 800

Question

Refer to the given figure where the nominal interest rate equals 6 percent and the money supply equals 600.  If the Federal Reserve wants to set the nominal interest rate at 10 percent, it must conduct open market ________ to set the money supply at ________.
A)purchases; 200 
B)sales; 200 
C)purchases; 800 
D)sales; 800

Quizplus · Accepted Answer

The nominal interest rate is determined by the intersection of the money supply and money demand curves. If the Fed wants the interest rate to be 10 percent, it must sell interest-bearing securities to decrease the money supply to 200.

Refer to the Given Figure Where the Nominal Interest Rate