Question 2 - Complete the following sentences Suppose that the central bank deci

Question

Question 2 - Complete the following sentences Suppose that the central bank decides to implement an expansionary monetary policy through an open market operation You predict that the central bank will [buy/sell]government bonds. This will [increase/decrease] bank reserves and [increase/decrease] the stock of money. As a result, the_[discount rate will increase / federal funds rate will increase / discount rate will decrease / federal funds rate will decrease] This will lead to [an increase in government spending and an increase in saving / a decrease in government spending and a decrease in investment / an increase in aggregate consumption and an increase in investment/a decrease in aggregate consumption and a decrease in saving] The AD curve will_move leftward/move rightward] and GDP will [increase/decrease].

Explanation / Answer

Buy increase Increase Federal fund rate will decrease An increase in aggregate saving and an increase in investment(saving by household is now not lucrative because of reduced interest rate , interest earnings go down, this increase consumption (Y= C+S) for household, investment rise because bills are now less on financial capital spending in terms of interest foregone or the loans) Move rightward Increase.

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