Answered: If the Fed opts to employ open market…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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If the Fed opts to employ open market operations to increase the money supply, then

a.The Fed will have to compensate for this change by increasing the discount rate

b.Bond rates will increase because the Fed must buy Treasury bonds from individuals in the market, and this will cause the demand for these bonds to increase

c.Banks will petition the Fed to increase the federal funds rate to recoup their losses

d.Government budget surpluses will be more likely to achieve

e.Bank reserves will decrease as consumers withdraw funds to purchase more Treasury Bonds and this will have an effect on the money supply via the money multiplier

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