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Fed conducts an open market purchase of government bonds, draw a figure to illustrate this open...

Fed conducts an open market purchase of government bonds, draw a figure to illustrate this open market operation. Your figure should also include interbank loans.

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Answer #1

When Fed conducts open market purchase of bonds the market is induced with liquidity and credit availability due to interbank loans and retail loans and thus now corporate have larger cash flow size and thus hiring and capex kicks in.

This pushes disposable incomes higher and thus consumption and aggregate demand widens.

Subsequently, the real GDP and Inflation both rise in tandem as results of expansionary monetary policy by Fed.

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