Purchase Solution

Consumer Theory, FED Selling Short Term Securities

Not what you're looking for?

Ask Custom Question

1. In your own words, describe what is meant by an open market operation. Explain in detail how the FED can use open market operations to help stimulate credit, production, and employment.

2. "Operation Twist" involves the FED selling its short term securities, while purchasing long term securities. This is an effort to lower the long-term yield curve. With the use of two separate bond market diagrams, one for the short term and one for the long term, show the effect of "operation twist" on short and long term interest rates. How is this maneuver supposed to influence business and the economy?

3. Apple, Inc. has been one of the best performers in recent history. Below is a graph of the stock price over time (Please see the attached PDF document).
a. Use consumer theory, that is, consumer demand analysis, to postulate and discuss two possible explanations of
Apple's stock price movement.

Attachments
Purchase this Solution
Solution Summary

This solution explains four different problems related to consumer behavior and market forces. The sources used are also included in the solution.

Solution Preview

Step 1
According to consumer theory one reason why the price of Apple Inc share has increased from $10 in 2004 to a peak of $667 in 2012 is that there is a high demand for Apple, Inc. share. The demand has increased because of sustained improvement in financial performance, lack of substitute shares, and a portfolio of cutting edge products. The market demand for Apple Inc shares has gone up because there are many customers who are willing to pay a premium for Apple Inc shares. There is high desire to buy these shares and the consumer preference for these shares has pushed up the prices of Apple Inc share.

The second possible explanation is that with economic downturn there are fewer companies whose stocks are comparable with those of Apple Inc. The alternative avenues of investment have declined leading to higher consumer demand for Apple, Inc. shares. This has ...

Purchase this Solution
Free BrainMass Quizzes
Economics, Basic Concepts, Demand-Supply-Equilibrium

The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.

Basics of Economics

Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.

Elementary Microeconomics

This quiz reviews the basic concept of supply and demand analysis.

Pricing Strategies

Discussion about various pricing techniques of profit-seeking firms.

Economic Issues and Concepts

This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.

View More Free Quizzes
Related BrainMass Solutions

  • policy, interest, yield, expectation theory, fees

    securities is greater than the yield on comparable short-term securities, the yield curve will be A) negatively sloped B) positively sloped C) in the negative quadrant D) undefined If the yield on short-term securities is greater than the

  • Explain the functions of the U.S. Federal Reserve System

    The Fed formulates monetary policy by setting a target for the federal funds rate, the interest rate that banks charge one another for very short-term loans.

  • Fed Funds Market

    These involve short-term transactions for its own account, purchasing or selling securities to add or drain system reserves as needed to balance the supply and demand at its target price.

  • Instruments of Monetary Policy

    While, to control the inflationary situations, the FED will increase the reserve requirements in order to reduce the lending activities. Discount window: Discount rate is the interest rate that the Fed charges banks for short-term loans.

  • Effect on short-term interest rates of Fed selling bonds

    161056 Effect on short-term interest rates of Fed selling bonds If the Federal Reserve sells government bonds, will short-term interest rates increase or decrease? Explain how this will affect aggregate demand and the rate of growth of the economy.

  • Characteristics that affect security yield

    The shape of the yield curve can be affected by the supply and demand for short-term and long-term securities.

  • Money supply and inflation

    Nominal interest rate =Real interest rate (1%) + inflation rate (0%) = 1 % 3) to DECREASE money supply, should the Fed buy or sell Treasury securities? why. To decrease money supply Fed sells Treasury securities.

  • Recession and tools to stimulate the economy

    necessary given the other forms of short-term credit available.

  • 2007 monetary policy of Bernanke

    STEP 3 Short term and long term yields on treasury securities: Both the short term and long term yields on treasury securities will be high. The reason is that the Fed intends to keep the federal fund rate at 5.25% now and throughout 2007.

View More Related Solutions