Question

You were planning to purchase a house this month with a mortgage then just learned that the Fed will conduct Open Market Purchase.

Your situation is flexible in terms of the timing of the purchase; right now or later.

It is assumed that everything else stays constant.

What’d be best strategy for your purchase? Explain using economic theory, not as a personal finance advisor.

Answer 1

If fed is going to purchase securities in open market operation it will increase the reserve of commercial banks and allow them to increase their loan and reduce interest rate so then best strategy is to purchase later when interest rate is low so that I have to pay low interest rate for loan amount.

If fed is going to sell government securities in open market operation then it will decrease the reserve of commercial banks and reduce their loans and investment and increase interest rate then best strategy is to purchase now or else I have to pay more interest rate for same amount of loan

Please upvote if i'm able to help you it means a lot