Assume the federal reserve sells government securities

Assignment Help Macroeconomics

Reference no: EM1336977

Effects of open-market transactions by the Fed

1. Suppose the Federal Reserve sells government securities from its existing holdings to the financial sector and the non-bank public. Trace through the expected consequences of this secondary market action on the banking system - reserves, loanable and investable funds, and deposits; financial markets - bond and stock prices, and interest rates; inflationary pressures; credit-sensitive spending; and the general state of the economy as measured by real GDP (or real income) and unemployment.

2. Deficit spending at the Federal level involves increased government purchases or reduced net taxation with new bonds issued by the US Treasury. The Treasury must sell these new bonds to the public. The Federal Reserve can allow this without adjusting its own policies or, by combining this sale with open market purchases, it can, in effect, monetize the debt. What are the consequences for interest rates, spending financed by private borrowing, the money supply, the bond supply and inflation from each of these two options for dealing with new Treasury issues? In the second case for simplicity, assume the open market purchase by the Fed matches in value the auction and sale of new Treasury securities.

Reference no: EM1336977

Questions Cloud

Explain strategic alignment and shareholder engagement : Explain Strategic alignment and shareholder engagement and marketing mix and What can it do to ensure that all key stakeholders are engaged in the process

Qualitative and quantitative research : Discuss the difference of qualitative and quantitative research.

Advantages and disadvantages of private placements : What are the possible advantages and disadvantages of private placements? What is the difference between a savings-surplus sector and a savingsdeficit sector? Give an example of each.

Investment decision rule problems : Investment Decision Rule Problems : - A $25 investment produces $27.50 at the end of the year with no risk. If the OCC = 10% annually is this a good investment?

Assume the federal reserve sells government securities : Assume the Federal Reserve sells government securities from its existing holdings to the financial sector and the non-bank public.

Write down a c program that takes an integer argument : Write a C program that takes an integer argument from command line and outputs the sum of all digits of the integer. For in case , the result of the invocation sum of digits 12345 should be 15.

Variety of success factors that affect project management : The Chaos report lists a variety of success factors that affect project management. This includes user involvement, executive management support, proper planning, clear statement of requirements.

Explaining different law : Read the two attachments of the four vignettes and label them according to what type of law has been violated. The laws are: Criminal law, Civil law

Assume that the unemployment benefits provided : Assume that the unemployment benefits provided by the private sector (firms) are increased permanently, please answer the following questions.

User Account

All Pages