Suppose the Federal Reserve purchases $5 million in government bonds from First

Question

Suppose the Federal Reserve purchases $5 million in government bonds from First Liquidity Bank. Which one of the following statements below is/are true? (Check all that apply)

Question 8 options:

The value of government bonds held by the Federal Reserve will increase by $5 million

The reserves of First Liquidity Bank at the Federal Reserve will increase by $5 million

The value of the money supply will be expected to ultimately increase by more than $5 million

The holdings of government bonds held by First Liquidity Bank will decrease by $5 million

The value of government bonds held by the Federal Reserve will increase by $5 million

The reserves of First Liquidity Bank at the Federal Reserve will increase by $5 million

The value of the money supply will be expected to ultimately increase by more than $5 million

The holdings of government bonds held by First Liquidity Bank will decrease by $5 million

Explanation / Answer

Options 1, 3 & 4 are correct

The reserves of First Liquidity Bank will decrease by $5mn hence option 2 is false

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