fill in the blank The federal Reserve _________ (buys/sells) government bonds in the open market to...

fill in the blank

The federal Reserve _________ (buys/sells) government bonds in the open market to increase the money supply and __________ (raise/lower) interest rates, resulting in ___________(more/less) borrowing and spending. Expansionary monetary policy has the effect of shifting aggregate demand to the ________ (left/right) and thereby ___________( increasing/decreasing) unemplyment.

PLEASE ANSWER CORRECTLY.

Solutions

Expert Solution

The federal Reserve ____BUYS_____ (buys/sells) government bonds in the open market to increase the money supply and ___LOWER_______ (raise/lower) interest rates, resulting in _____MORE______(more/less) borrowing and spending. Expansionary monetary policy has the effect of shifting aggregate demand to the ___RIGHT_____ (left/right) and thereby ______DECREASING_____( increasing/decreasing) unemplyment.

Explanation:

When the Federal Reserve (Central bank of US), buys government bonds, then it pays money in return to buy those bonds, this increases the supply of overall money in the economy. The rate of interest charged on the borrowing is reduced to encourage people to borrow more, again it leads to increase in the supply of money in the economy. This expansionary monetary supply causes the AD curve to shift to the right because consumption and investment are increases and therefore unemployment level falls.

Rahul Sunny answered 1 year ago

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