To contract the economy with open market operation, the federal reserve will

Solutions

Expert Solution

If the Fed's goal is contractionary, it sells Treasurys in order to pull money out of the system. Money gets tight, and interest rates drift upwards. Consumers pull back on their spending. Businesses trim their plans for growth, and the economy slows down.

The Fed will undertake the process when the economy is overheating and inflation is reaching the limit of its comfort zone. When the Fed sells bonds to the banks, it takes money out of the financial system, reducing the money supply.

This will cause interest rates to rise, discouraging individuals and businesses from borrowing and investing, while encouraging them to put their money in less productive investments such as interest-bearing savings accounts and certificates of deposit. This has the effect of slowing inflation and economic growth.

Please give thumbs up

From Mona....

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

To contract the economy with open market operation, the federal reserve will Group of answer choices...

To contract the economy with open market operation, the federal reserve will Group of answer choices increase reserve requirements increase discount rates buy T-bonds from banks sell T-bonds to banks

Open market operations versus discount loans Consider an expansionary open market operation. Suppose the Federal Reserve...

Open market operations versus discount loans Consider an expansionary open market operation. Suppose the Federal Reserve buys government securities from the nonbank public. Suppose that the sellers of government securities deposit the checks drawn on the New York Fed into their bank account. Then, ceteris paribus, bank reserves ? ,currency in circulation ?, and thus the monetary base will ? Suppose now that the Federal Reserve wants to increase the monetary base by increasing bank reserves only. Which of the following...

on chapter 15 and 16 explain how the federal reserve can use open market operation reserve...

on chapter 15 and 16 explain how the federal reserve can use open market operation reserve requirement and fed funds/discount rate policies to resolve an exonomy with an inflationary gap.

3. Open market operations versus discount loans Consider an expansionary open market operation. Suppose the Federal...

3. Open market operations versus discount loans Consider an expansionary open market operation. Suppose the Federal Reserve buys government securities from the nonbank public. Suppose that the sellers of government securities deposit the checks drawn on the New York Fed into their bank account. Then, ceteris paribus, bank reserves ___________ (increase / decrease / do not change) , currency in circulation ___________ (increase / decrease / do not change) , and thus the monetary base will ___________ (increase / decrease)....

What are open market operations? Explain. How can the Federal Reserve use its open market operations...

What are open market operations? Explain. How can the Federal Reserve use its open market operations to expand or contract the nation’s money and credit supply? Describe the chain of command at the Federal Reserve that oversees its open market operations. Give a detailed account of how monetary policy works to impact interest rates, aggregate demand, and the macroeconomy.

Visit the Meeting calendars, statements, and minutes section of the U.S. Federal Reserve Federal Open Market...

Visit the Meeting calendars, statements, and minutes section of the U.S. Federal Reserve Federal Open Market Committee. If this page does not load, type "FOMC meetings" in the "Search" box located on the U.S. Federal Reserve home page. Next, select a date from any year and click on the “Statement” link. Respond to the following questions by writing 1-2 paragraphs for each item: What action did the Committee take on this date? What comments (if any) were made with respect...

The economy is in a recession. The FED engages in an open market operation (OMO). Explain...

The economy is in a recession. The FED engages in an open market operation (OMO). Explain in detail how the economy will react. Explain the OMOs impact on asset allocations and the prices of securities; Explain how the OMO will impact the real economy, explain each step of the adjustment process, graph the process.

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.

The Federal Reserve purchases a $1000 Treasury Bond in an open market transaction. With a 15%...

The Federal Reserve purchases a $1000 Treasury Bond in an open market transaction. With a 15% reserve requirement, what is the theoretical maximum increase in system-wide bank deposits?

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.

Subjects