D) price level = 2, money supply = 25 billion Equilibrium exists where the price
ID: 1097969 • Letter: D
Question
D) price level = 2, money supply = 25 billion
Equilibrium exists where the price level is 1.25 and the money supply equals 21 billion. What is a new possible equilibrium when the Federal Reserve buys some government bonds? A) price level = 1.25, money supply = 21 billion B) price level = 4 , money supply = 21 billion C) price level = 9, money supply = 25 billionD) price level = 2, money supply = 25 billion
Equilibrium exists where the price level is 1.25 and the money supply equals 21 billion. What is a new possible equilibrium when the Federal Reserve buys some government bonds? A) price level = 1.25, money supply = 21 billion B) price level = 4 , money supply = 21 billion C) price level = 9, money supply = 25 billion D) price level = 2, money supply = 25 billionExplanation / Answer
If the Fed buys bonds in the open market, it increases the money supply in the economy by swapping out bonds in exchange for cash to the general public. Conversely, if the Fed sells bonds, it decreases the money supply by removing cash from the economy in exchange for bonds.
So the ans will be D where the supply will shift to MS2 and the demand willl be at MD2 so the point will be 2
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