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#7c] Given the answers to the previous two questions, andthe M3 moneysupply soaring to $21 trillion., how did the FED hope andpredict that banksand the bond market would respond:[a] Banks increased the rates they offered on long term BankCDs and thispulled excess money balances into them. Meanwhile, bondprices fell andtheir interest yields then increased. Thus, higher interestrates.[b] Banks reduced the rates they offered on long term BankCDs and thispushed funds out of them into money balances.Meanwhile, bond pricesrose and their interest yields then decreased. Thus, lowerinterestrates.

Fed increases the money supply by purchasing securities and bonds in the financial market. As the…

Answered: [Q#7c] Given the answers to the…

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.

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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