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 4 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 4 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 4 percent, it must purchase securities to increase the money supply to 800.

Refer to the Given Figure Where the Nominal Interest Rate