Part 1When the federal government sells a Treasury bond in the primary marketlong dash—via Treasury auction, it is:Part 2
A. directly putting downward pressure on interest rates. B. increasing the money supply. C. seeking a safe investment vehicle for the Social Security Trust Fund. D. seeking to finance government spending as an alternative to raising taxes.

Question

Part 1When the federal government sells a Treasury bond in the primary marketlong dash—via Treasury​ auction, it​ is:Part 2
A. directly putting downward pressure on interest rates. B. increasing the money supply. C. seeking a safe investment vehicle for the Social Security Trust Fund. D. seeking to finance government spending as an alternative to raising taxes.

BlackTom AI · Accepted Answer

The question asks about the purpose of the federal government selling a Treasury bond in the primary market via Treasury auctions.
Option A: 'directly putting downward pressure on interest rates.' In reality, auctions themselves do not set policy to push rates downward; rather, the interest rate (yield) results from market demand at the auction. It’s not accurate to say the act of issuing bonds directly determines downward pressure on rates in a prescriptive sense.
Option B: 'increasing the money supply.' Selling bonds in the primary market is a mechanism that can absorb reserves from the banking system, not increase the money supply. When the government sells bonds, investors pay for them with money that is removed from circulation, which can reduce, not expand, the money supply.
Option C: 'seeking a safe investment vehicle for the Social Security Trust Fund.' While Treasury securities are considered safe, the primary purpose of issuing bonds is not specifically to provide a vehicle for the Social Security Trust Fund. That fund’s holdings are a separate objective within the broader fiscal framework and asset allocation, not the fundamental reason for a primary market auction.
Option D: 'seeking to finance government spending as an alternative to raising taxes.' This aligns with the typical explanation: Treasury auctions finance government operations and deficits, providing funds to cover expenditures when tax revenue and prior surpluses are insufficient. It represents the standard role of issuing government debt to fund spending rather than immediately increasing taxes.
In summary, each incorrect option misstates the mechanism or purpose of primary-market Treasury auctions: A confuses market outcomes with policy intentions, B misinterprets the effect on the money supply, C overemphasizes a specific use by a trust fund rather than the general financing purpose, and D correctly identifies the core objective of financing government spending as an alternative to tax hikes.

Quiz:Quiz 1

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