The yield curve is A) the term structure of interest rates. ...

[james9437]

The yield curve is
 
  A) the term structure of interest rates.
  B) the relation between maturity and yield of a bond.
  C) maturity.
  D) both A and B
  E) all of the above

Question 2

Discuss the tools of the Federal Reserve and explain how each can be used to change the money supply and equilibrium interest rate.
 
  What will be an ideal response?

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Answer to Question 1

D

Answer to Question 2

The Fed has three tools: discount rate, open market operations, and the reserve ratio. An open market sale or purchase will cause a change in H and M. This will in turn cause a change in the money supply. A change in the required reserve ratio will cause a change in the money multiplier and, therefore, the money supply. When the money supply changes, the interest rate will change. Changes in the discount rate do not directly cause changes in the money supply.