For the next set of questions consider changes in the supply of money by the FED – this will shift the money supply, MS, line and produce a new equilibrium in the money market and change the interest rate. From 2008 until 2021, the FED increased its portfolio of bond holdings by more than $7 trillion. By buying bond securities in the financial markets it sought to increase liquidity within them and increase the supply of money. (Q#7a) Each time the FED purchased a large tranche (amount)of treasuryand mortgage bonds, what impact did this have on the moneymarketdirectly after the supply of money was increased – in theimmediate "run"?[a] a surplus was created in the money market[b] a shortage was created in the money market[Q#7b] As a result of the outcome from the previous question,what wastrue in the money market?[a] the prevailing interest was too high and an equilibriumbalance wasrestored by a reduction in the interest rate through time[b] the prevailing interest was too low and an equilibriumbalance wasrestored by an increase in the interest rate through time

Answer - Money Market:- money market is a market where money and other loanable funds are…

Answered: (Q#7a) Each time the FED purchased a…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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For the next set of questions consider changes in the supply of money by the
FED – this will shift the money supply, MS, line and produce a new equilibrium
in the money market and change the interest rate.
From 2008 until 2021, the FED increased its portfolio of bond holdings by
more than $7 trillion. By buying bond securities in the financial markets it
sought to increase liquidity within them and increase the supply of money.

(Q#7a) Each time the FED purchased a large tranche (amount)
of treasury
and mortgage bonds, what impact did this have on the money
market
directly after the supply of money was increased – in the
immediate "run"?
[a] a surplus was created in the money market
[b] a shortage was created in the money market
[Q#7b] As a result of the outcome from the previous question,
what was
true in the money market?
[a] the prevailing interest was too high and an equilibrium
balance was
restored by a reduction in the interest rate through time
[b] the prevailing interest was too low and an equilibrium
balance was
restored by an increase in the interest rate through time

Definition Definition Financial market that deals in securities or assets that are short-term in nature. The money market is responsible for keeping up the liquidity of the businesses and the organizations. These securities are usually held for a period of 12 months or less and are issued by institutions that require cash or funds for their short-term cash flow requirements. The money market is regulated by the federal government.

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