Question

Explain how a change in open market operations can affect a new college graduate. Be specific and include examples

Answer 1

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Answer:

Open market operations refers to change in government securities and bonds held by government. Let us take a case of Central Bank adopting expansionary monetary policy by buying bonds from the public which is holding bonds. They give cash in exchange of buying bonds from them which raise money supply in the economy by raising circulation money in the economy. Rise in cash holdings of people tends to raise willingness to pay by people which result in rise in aggregate demand. Rightward shift in demand curve from demand to new demand will raise aerage price level from P to P1 which result in rising inflation rate in economy.

As a college graduate, rise in average price of goods will reduce your real purchasing power because you would be able to buy less units of goods using same money as before.