Question

An open market purchase of government bonds by the Federal Reserve has a tendency to: a....

An open market purchase of government bonds by the Federal Reserve has a tendency to:

a. shift the demand curve for bonds to the left, decrease the price of bonds, and increase the interest rates.

b. shift the demand curve for bonds to the right, increase the price of bonds, and increase the interest rates.

c. shift the demand curve for bonds to the right, increase the price of bonds, and decrease the interest rates

d. shift the demand curve for bonds to the left, decrease the price of bonds, and decrease the interest rates.

Business   Economics   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Answer- Correct option is 'c'

An open market purchase of government bonds by the Federal Reserve has a tendency to shift the demand curve for bonds to the right, increase the price of bonds, and decrease the interest rates. When the federal reserve buy bonds through open market operations, the Fed is increasing the demand for bonds. Open market purchases raise bond prices, open market sale lower the bond price. So, open market operation positively affected bond prices. Interest rate are negatively related to the bond price. It follows open market purchase decrease interest rates that means increase in bond price, decrease the interest rates.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
1. When the Fed purchases government bonds, that tends to ___ the federal funds rate and...
1. When the Fed purchases government bonds, that tends to ___ the federal funds rate and ___ the prime rate. a. increase; increase b. increase; decrease c. decrease; increase d. decrease; decrease e. None of the above 2. How does the Federal Reserve affect the supply of money using open market operations? a. The Fed increases the reserve requirements of bank and thus banks must obtain additional funds from the Fed. b. The Fed buys government bonds from banks, which...
a) In an open-market purchase, the Reserve Bank ____ government bonds and the supply of bank...
a) In an open-market purchase, the Reserve Bank ____ government bonds and the supply of bank reserves ______. A. buys; increases B. buys; decreases C. buys; does not change D. sells; increases b) If inflation does not adjust rapidly in the short run, then when the Reserve Bank increases the nominal interest rate, in the short run the real interest rate will: A. increase B. decrease C. not change D. equal the nominal interest rate c) If planned aggregate spending...
1) If the Federal Reserve conducts an open market purchase, we can expect that the short-run...
1) If the Federal Reserve conducts an open market purchase, we can expect that the short-run Phillips curve will shift left. the short-run Phillips curve will shift right. t here will be a movement to the right along the short-run Phillips curve. there will be a movement to the left along the short-run Phillips curve. the long-run Phillips curve will shift right. 2) In the long run, the Phillips Curve shows that the natural rate of unemployment is independent of...
Which of these increase or decrease the money supply? A) Federal Reserve buys bonds in open-market...
Which of these increase or decrease the money supply? A) Federal Reserve buys bonds in open-market operation. B) Federal Reserve reduces the reserve requirement. C) Federal Reserve increases the interest rate it pays on reserves. D) Citibank repays a loan it had previously taken from the Federal Reserve. E) After a rash of pickpocketing, people decide to hold less currency. F) Fearful of bank runs, bankers decide to hold more excess reserves. G) The FOMC increase its target for the...
2) The Federal Reserve issues a report indicating that future inflation will be higher than had...
2) The Federal Reserve issues a report indicating that future inflation will be higher than had previously seemed likely. As a result A) the supply curve for bonds shifts to the right. B) the demand curve for loanable funds shifts to the left. C) the equilibrium interest rate falls. D) the equilibrium price of bonds rises. Answer: A 7) As a result of higher expected inflation A) the demand and supply curves for bonds both shift to the right and...
4. Suppose that there is a simultaneous “cut in government spending” and “an open market purchase...
4. Suppose that there is a simultaneous “cut in government spending” and “an open market purchase of bonds”. Which of the following must occur as a result of this? a. output increases. b. output decreases. c. the interest rate increases. d. the interest rate decreases. e. both output and the interest rate increase. 5. An expansionary open market operation through ___ bonds will cause bond price to ___. a. buying; increase b. buying; decrease c. selling; increase d. selling; decrease
5. a. The Federal Reserve carries out an open market purchase of Treasury securities. Why does...
5. a. The Federal Reserve carries out an open market purchase of Treasury securities. Why does this increase the reserves and deposits at banks? b. The Federal Reserve carries out an open market sale of Treasury securities. Why does this decrease reserves and deposits at banks?
1) Open market purchase will result in: increase in bank reserves and a decrease in the...
1) Open market purchase will result in: increase in bank reserves and a decrease in the federal funds rate. increase in bank reserves and an increase in the federal funds rate. decrease in bank reserves and a decrease in the federal funds rate. decrease in bank reserves and an increase in the federal funds rate. 2) An increase in government expenditure would shift the: A) aggregate demand curve rightward. aggregate demand curve leftward. aggregate supply curve rightward. aggregate supply curve...
When the Federal Reserve engages in looser monetary policy through open market operations, it ___________ bonds....
When the Federal Reserve engages in looser monetary policy through open market operations, it ___________ bonds. Group of answer choices a) purchase b) sells c) calls d) changes ratings on
When a bank repays a loan at the discount window to the Federal Reserve, it will...
When a bank repays a loan at the discount window to the Federal Reserve, it will __________ the monetary base by __________ bank reserves. Select one: a. decrease; decreasing b. increase; decreasing c. decrease; increasing d. increase; increasing The securities that the Federal Reserve holds on its balance sheet include Select one: a. ?US Treasury securities, federal agency debt, and privately issued mortgage-backed securities. b. ?privately issued stocks, US Treasury securities, and federal agency debt. c. municipal bonds, privately issued...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT