e201_hw3_spr10_costanzo

C the benefit to the company of buying the stock back

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Unformatted text preview: than the Dividend Yield. c. The benefit to the company of buying the stock back is that the company may want to boost its stock price. The company may also decide that the extra funds are more useful than investing in a new company 1 of 5 or reinvesting in its own business Initial Funds Demanded Buy-back funds Supplied Initial Funds Supplied Buy-back Funds Demanded 2. Answer the following questions with one or two sentences each: (a) What is the discount rate? (b) What happens to the money supply when the Fed raises the discount rate? (c) If the Fed wants to increase the money supply with open-market operations, what does it do? a. The discount rate is the rate the Fed charges banks to borrow money. b. If the rate is increased, banks tend to borrow less and have less available to loan to individuals. Therefore banks won't lend as much money and since we operate using a fractional reserve banking system less money can be fractionally l...
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