Question

In: Finance

An open market sale will A. Increase the bank reserves and money supply, and causes the...

An open market sale will

A.

Increase the bank reserves and money supply, and causes the federal funds rate to fall.
B.

Reduce the bank reserves and money supply, and causes the federal funds rate to raise.
C.

Increase the bank reserves and money supply, and causes the federal funds rate to raise.
D.

Reduce the bank reserves and money supply, and causes the federal funds rate to fall.

Solutions

Expert Solution

The correct answer is the second option i.e. option B. Reduce the bank reserves and money supply, and causes the federal funds rate to raise.

Let's understand what an open market sale does.

Open market sales

  • lower reserves
  • lowers the monetary base
  • and thus lowers the money supply.
  • Thus, it shifts the supply curve to the left and causes the federal funds interest rate to rise.

jeff jeffy answered 2 years ago
Next > < Previous

Related Solutions

Other things equal, an open market sale by the FED will: a) Increase the money supply...
Other things equal, an open market sale by the FED will: a) Increase the money supply b) Increase the interest rate c) Decrease the interest rate d) Decrease the discount rate Which one of the following is a monetary policy tool available to the FED? a) Open Market operations b) Reserve Requirements c) Discount Rate d) All of the above The tools that the FED has in its disposal to conduct monetary policy include: a) The fed funds rate and...
If the Federal Reserve decided to increase the money supply by engaging in open market bond...
If the Federal Reserve decided to increase the money supply by engaging in open market bond purchases from the non-bank public, explain what will happen to the equilibrium interest rate in the U.S. (in your description mention or show with a graph the change in the supply curve for loanable funds and the change in its intersection with the demand curve for loanable funds.
If the Federal Reserve decided to increase the money supply by engaging in open market bond...
If the Federal Reserve decided to increase the money supply by engaging in open market bond purchases from the non-bank public, explain what will happen to the equilibrium interest rate in the U.S. (in your description mention or show with a graph the change in the supply curve for loanable funds and the change in its intersection with the demand curve for loanable funds.     
If the central bank of Toyoashihara decides to increase money supply substantially by increasing its open...
If the central bank of Toyoashihara decides to increase money supply substantially by increasing its open market purchases, answer the following questions regarding Toyoashihara’s economy. a) Describe the impact of these open market purchases in Toyoashihara’s money market. b) Use the AS-AD diagram to show the impact of the increased money supply on the Toyoashihara economy in the short run (label the short run ESR). Show initial position, all curve shifts, and explain. c) Explain what will happen to bring...
How does the Federal Open Market Committee increase the money supply? Why might the Federal Open...
How does the Federal Open Market Committee increase the money supply? Why might the Federal Open Market Committee choose to increase the money supply?
How does the Federal Open Market Committee increase the money supply? Why might the Federal Open...
How does the Federal Open Market Committee increase the money supply? Why might the Federal Open Market Committee choose to increase the money supply?
How does the Federal Open Market Committee increase the money supply? Why might the Federal Open...
How does the Federal Open Market Committee increase the money supply? Why might the Federal Open Market Committee choose to increase the money supply? MUST BE AT LEAST 250 WORDS
If the Bank of Canada conducts open-market purchases, how do the money supply and the aggregate...
If the Bank of Canada conducts open-market purchases, how do the money supply and the aggregate demand change? a. The money supply decreases, and aggregate demand shifts left. b. The money supply decreases, and aggregate demand shifts right. c. The money supply increases, and aggregate demand shifts right. d. The money supply increases, and aggregate demand shifts left.
Which of the following is correct? a. An increase in the money supply causes the interest...
Which of the following is correct? a. An increase in the money supply causes the interest rate to decrease so that aggregate demand shifts right. b. An increase in stock prices reduces consumption spending so that aggregate demand shifts left c. A recession in other countries reduces U.S. net exports so that U.S. aggregate demand shifts left. d. All of the above are correct.
If reserves are scarce, how would the money supply M change (increase or decrease)
If reserves are scarce, how would the money supply M change (increase or decrease) and why (due to an increase, decrease, or no change in the monetary base B, in the reserve-deposit ratio rr, or in the currency-deposit ratio cr) if:(a) the central bank conducts overnight repurchase operations.(b) the central bank conducts overnight reverse repurchase operations.(c) the central bank increases the required reserve-deposit ratio.(d) an article reporting a significant surge in cases involving counterfeit currency becomes viral.(e) all drugs are...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT