10. How does an open market purchase of Treasury securities by the Fed affect th

Question

10. How does an open market purchase of Treasury securities by the Fed affect the price of Treasury securities, the yield on Treasury securities, the monetary base, and the money supply? An open market purchase of Treasury securities (1) the price of Treasury securities, thereby the yield on Treasury securities The purchase of Treasury securities (3) the monetary base and (4) the money supply (4) O does not affec O decreases O increases (1) O increases (2) O not affecting (3) O increases O does not affect O decreases O decreasing O does not affect O decreases O increasing 11. What advantages do open market operations have over other policy tools? (Check all that apply.) A. They are flexibiible B. Open market operations are easy to implement C. They are under the complete control of the Fed D. They are inexpensive

Explanation / Answer

10. The correct answers are:

1. a) increases,

2. b) decreasing

3. a) increases

4. c) increases

Reason: there is excess demand in the bond market, price of bond rises decreasing the interest rate. Also, it increases the monetary base and in turn the money supply.

11. The correct answers are: b), c)

Reason: open market purchase and sale of bonds are very easy to implement and are under complete control of the Fed.

Thanks!

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