Asked by Jalyn Froese on Jul 30, 2024
Verified
What would be the effect on U.S.interest rates if the Chinese and Japanese governments sold all their U.S.government securities?
A) Interest rates would rise.
B) Interest rates would fall.
C) The selling of Chinese and Japanese U.S.government securities would have very little effect on U.S.interest rates.
Interest Rates
The cost of borrowing money, typically expressed as a percentage of the principle.
U.S. Government Securities
Financial instruments issued by the United States Department of the Treasury to finance federal government spending, including Treasury bills, notes, and bonds.
Chinese
Relating to China, its people, languages, or culture, including aspects of its history, traditions, and socioeconomic development.
- Recognize the effects of international financial actions on U.S. monetary policy and interest rates.
Verified Answer
SR
sahith reddyAug 01, 2024
Final Answer :
A
Explanation :
If the Chinese and Japanese governments sold all their U.S. government securities, it would increase the supply of bonds in the market. This would cause the demand for U.S. debt to fall, lowering the value of the dollar. As a result, investors would demand a higher interest rate to hold U.S. government securities, leading to an increase in interest rates.
Learning Objectives
- Recognize the effects of international financial actions on U.S. monetary policy and interest rates.