True or False:
In the given scenario, the economy is in recession with lower level of unemployment and lower output. This implies that economy is experiencing fewer economic activities because of which nation is producing lower output. Also, fewer activities implies lack of jobs in the market. Now, to boost the economic activities in the market to increase the level of production, Fed will increase the money supply in the market. This is because a higher money supply leads to a rise in the investment that increases the production in an economy. Now, to increase the money supply, the Fed will buy the government bonds. This is because when the government buys the bonds from the public then they have to pay the money in returns of bonds. This leads to an outflow of funds from FEd to the public through securities brokers. Thus, the overall money supply in an economy increases that leads to a rise in the activities which in turn increases the output and reduces unemployment in an economy.
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