Question

In a(n) _______ open market operation, the Reserve Bank _______ the money supply by making an open market _______ of bonds in the overnight interbank market.

contractionary, reduces, purchase

expansionary, reduces, purchase

expansionary, increases, sale

contractionary, reduces, sale

2. Consider the country of Solow, which is described by the Solow–Swan growth model with constant total factor productivity. Let the saving rate θ = 0.75. Per capita output (y) is equal to 100 and the per capita capital stock (k) is 1000. For Solow to be in steady state:
the depreciation rate is 0.025 and the population growth rate is 0.05
the sum of the depreciation rate and the population growth rate must be less than 0.075
the depreciation rate is 0.25 and the population growth rate is 0.5
the depreciation rate and population growth rate must sum to 0.75

Answer 1

1. contractionary, reduces, sale (4th option)
In a(n) contractionary open market operation, the Reserve Bank reduces the money supply by making an open market sale of bonds in the overnight interbank market.

A contractionary monetary policy is a type of monetary policy that is intended to reduce the rate of monetary expansion to fight inflation. Hence, Reserve Bank sales the bonds in order to reduce the money supply in the market.

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