Refer to the given figure. If the Federal Reserve wants to set the nominal interest rate at 1 percent, it must conduct open market ________ to set the money supply at ________.
A)purchases; 300
B)sales; 100
C)purchases; 900
D)sales; 900

Question

Refer to the given figure.  If the Federal Reserve wants to set the nominal interest rate at 1 percent, it must conduct open market ________ to set the money supply at ________.
A)purchases; 300 
B)sales; 100 
C)purchases; 900 
D)sales; 900

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 1 percent, it must purchase securities to increase the money supply to 900.

Refer to the Given Figure