Answered: If the Fed opts to employ open market…

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

Macroeconomics

13th Edition

ISBN:9781337617390

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter13: The Federal Reserve System

Section: Chapter Questions

Problem 8QP

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Question

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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