Question

In: Economics

16) If the Fed makes an open market ________ of government securities, the federal funds rate...

16) If the Fed makes an open market ________ of government securities, the federal funds rate will ________ as the quantity of money ________.

A) purchase; rise; increases

B) sale; fall; increases

C) purchase; fall; decreases

D) sale; rise; decreases

17) If the Fed makes an open market ________ of government securities, the federal funds rate ________ and the immediate impact is to shift the aggregate ________ curve.

A) purchase; falls; demand

B) sale; falls; demand

C) sale; rises; supply

D) purchase; rises; supply

18) If the Fed makes an unexpected open market ________ of government securities, the aggregate ________ curve shifts rightward and ________.

A) sale; supply; the short-run Phillips curve shifts upward

B) purchase; demand; the short-run Phillips curve shifts downward

C) sale; demand; there is a movement along the short-run Phillips curve

D) purchase; demand; the long-run Phillips curve shifts rightward

19) When the Fed enacts monetary policy, in the short run it changes

A) the AD curve.

B) the SAS curve.

C) both the AD and SAS curves.

D) potential GDP.

20) If the economy is at potential GDP and the Fed makes an open market sale of government securities, in the long run the aggregate ________ curve shifts ________ and the price level ________.

A) demand; rightward; rises

B) supply; leftward; rises

C) demand; leftward; falls

D) supply; leftward; falls

please answer everything and correct thankyou

Solutions

Expert Solution

16. Let's analyse the options and see how does it suit,

Option A - If the Fed makes an open market purchase,of government securities,the federal funds rate falls (do not rise as given in the option)for the fed wants to lend more money to ensure an expansionary policy as the quantity of money increases - so option A is wrong.

Option B -If the Fed makes an open market sale it is contractionary monetary policy,and the federal funds rate rises (does not fall) and the quantity of money decreases - so option B is wrong

Option C - If the Fed makes an open market purchase of government securities, it is expansionary policy ,the federal rate falls as credit should become attractive, and the quantity of money increases( do not decrease) .So option C is incorrect

Option D - If the Fed makes an open market sale of government securities the federal reate rises and the quantity of money decreases - So 'D " is the correct option. The sale of government securities in the open market is a part of contractionary monetary policy aimed at reducing the money supply, the federal funds rate are kept high to discourage easy credit creation.

Rahul Sunny answered 1 month ago

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