Suppose the Federal Reserve is conducting contractionary monetary policy using open market operations. a.) What is...

Suppose the Federal Reserve is conducting contractionary monetary policy using open market operations.

a.) What is happening to the money supply?

b.) What is happening to the federal funds rates?

c.) Would the Federal Reserve be buying or selling treasury bills?

d.) What are the two main policy goals of the Federal Reserve and for which policy goal is contractionary monetary policy best used?

Solutions

Expert Solution

a) When the Fed is adopting a contractionary monetary policy in the market then the money supply is decreasing.

b) Federal fund rate will increase as the banks now have less funds in the market.

c) The federal reserve will be selling the bonds

d) it is to reduce the inflation in the market and increase the interet rate.

Rahul Sunny answered 1 year ago

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