Suppose the Fed decided to sell $250 billion worth of government securities in the open market. Assume all payments are

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Suppose The Fed Decided To Sell 250 Billion Worth Of Government Securities In The Open Market Assume All Payments Are 1 (59.04 KiB) Viewed 80 times

Suppose the Fed decided to sell $250 billion worth of government securities in the open market. Assume all payments are directly deposited into or withdrawn from the banking system. What impact would this action have on the economy? Specifically, answer the following questions. Instructions: Enter your responses as a whole number. If the lending capacity or aggregate demand falls be sure to include a negative sign (-) with your answer. a. How will M1 be affected initially? Increase by $250 billion Decrease by $250 billion No initial change to M1 Not enough information to answe b. By how much will the banking system's lending capacity change if the reserve requirement is 10 percent? $390 billion c. How must interest rates change to induce investors to utilize this change in lending capacity? Interest rates must fall d. By how much will aggregate demand initially change if investors change their behavior because of this change in available credit? $ 390 billion e. Under what circumstances would the Fed be pursuing such an open market policy? Expansion Recession f. To attain those same objectives, what should the Fed do with the (0) Discount rate? Increase Decrease (ii) Reserve requirement? Increase Decrease