Answer to Question #83870 in Macroeconomics for Marina

Question

With open market operations the fed buys of sells fed funds and government debt in the open market. If the Fed buys a large amount of treasury bills and bonds what change would you expect in the money supply in ingest rates and in inflation. Would money supply increase or decrease. Would Intrest rates increase or decrease. Would inflation increase or decrease. Why and how is money supply changing.

Answer 1

If the Fed buys a large amount of treasury bills and bonds, then the money supply will increase, interest rates will decrease and inflation will increase. Money supply will increase, because the Fed injects a large amount of money to buy the bonds and treasury bills.