ECONOMICS
MONETARY POLICY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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decrease money supply in hopes of increasing the unemployment rate
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decrease money supply in hopes of preventing further inflation.
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increase money supply in hopes of driving inflation up.
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increase money supply in hopes of growing the economy (GDP)
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Detailed explanation-1: -Thus by buying the bonds, the Fed adds new money to the economy, serves to lower interest rates by bidding up fixed-income securities. Thus, it expands the central bank balance sheet. 1.
Detailed explanation-2: -If the Fed buys bonds in the open market, it increases the money supply in the economy by swapping out bonds in exchange for cash to the general public. Conversely, if the Fed sells bonds, it decreases the money supply by removing cash from the economy in exchange for bonds.
Detailed explanation-3: -The Fed purchased longer-term securities on the open market, including U.S. Treasuries and mortgage-backed bonds. These investments in securities (typically in the fixed income market) add liquidity and reduce borrowing costs to encourage economic activity through more lending and investment.
Detailed explanation-4: -Conducting monetary policy If the Fed, for example, buys or borrows Treasury bills from commercial banks, the central bank will add cash to the accounts, called reserves, that banks are required keep with it. That expands the money supply.
Detailed explanation-5: -To increase the (growth of the) money supply, the Fed could either buy bonds, lower the reserve requirement ratio, or lower the discount rate. To decrease the (growth of the) money supply, the Fed could either sell bonds, raise the reserve requirement ratio, or raise the discount rate.