When the Federal Reserve purchases government treasury bonds from commercial banks, we can expect interest rates...

Question

Question

When the Federal Reserve purchases government treasury bonds from commercial banks, we can expect interest rates...

When the Federal Reserve purchases government treasury bonds from commercial banks, we can expect interest rates in the economy to _______. As a result, spending by firms and households is likely to _______.

business economics

Add a comment Improve this question Transcribed image text

Answer 1

Answer #1

We can expect interest rates in the economy to fall. As a result, spending by firms and households is likely to increase.

Explanation: When the Fed buys securities from banks, money supply flows from the Fed to the commercial banks. This increases the money supply in the economy, which results in a fall in the interest rate. When the interest rate falls, firms and individuals can borrow more to spend or invest.

Add a comment

Answer 2

Similar Homework Help Questions

1.67 pts When the Federal Reserve purchases government treasury bonds from commercial banks, we can expect...

1.67 pts When the Federal Reserve purchases government treasury bonds from commercial banks, we can expect interest rates in the economy to As a result, spending by firms and households is likely to decrease : increase increase : increase increase : decrease decrease : decrease
Problem 1: Commercial Banks (5pts) 1a. (1pt) We can think of commercial banks as trading bonds...

Problem 1: Commercial Banks (5pts) 1a. (1pt) We can think of commercial banks as trading bonds in the economy. When a household puts their savings in a commercial bank, does the commercial bank sell bonds to the household or buy bonds from the household? 1b. (1pt) We can think of commercial banks as trading bonds in the economy. When a firm takes a loan from a commercial bank, does the commercial bank sell bonds to the firm or buy bonds...
Problem 1: Commercial Banks (5pts) 1a. (1pt) We can think of commercial banks as trading bonds...

Problem 1: Commercial Banks (5pts) 1a. (1pt) We can think of commercial banks as trading bonds in the economy. When a household puts their savings in a commercial bank, does the commercial bank sell bonds to the household or buy bonds from the household? 1b. (1pt) We can think of commercial banks as trading bonds in the economy. When a firm takes a loan from a commercial bank, does the commercial bank sell bonds to the firm or buy bonds...

Let’s say the Federal Reserve buys $20 Billion in bonds from private banks: *Total reserve requirement...

Let’s say the Federal Reserve buys $20 Billion in bonds from private banks: *Total reserve requirement = 0.10 x $1Trillion = $100 Billion What is the total amount (in $) of reserves that banks can lend? Using the simple deposit multiplier, how much additional money (M1) is created by this process? What will happen to the Federal Funds Rate, the prime rate, and other nominal interest rates in the economy? (Go up, down, stay the same?) Why? If the price...
a) Show the changes to the balance sheets for commercial banks when the Federal Reserve buys...

a) Show the changes to the balance sheets for commercial banks when the Federal Reserve buys $50 million in us Treasury Bills. If the public holds a fixed amount of currency (so that all loans create an equal amount of deposits in the banking system , the minimum reserve requirement is 5%, by how much will checkable bank deposits in commercial banks change? b) Now suppose that the Fed raises the discount rate significantly. How would you expect this to...
When the Federal Reserve Banks decide to buy government bonds from banks and the public, the...

When the Federal Reserve Banks decide to buy government bonds from banks and the public, the supply of reserves in the federal funds market _____. Multiple Choice increases and the federal funds rate decreases increases and the federal funds rate increases decreases and the federal funds rate increases decreases and the federal funds rate decreases

1.The Fed purchases $100,000 of U.S. government securities from One Bank. Assuming the desired reserve ratio...

1.The Fed purchases $100,000 of U.S. government securities from One Bank. Assuming the desired reserve ratio is 10 percent, banks loan all excess reserves, and the currency drain is 20 percent, how much does the quantity of money increase? A. $1,000,000 B. $10,000,000 C. $1,100,000 D. $900,000 E. $100,000 2.A bank maximizes its stockholders' wealth by ______. A. colluding with other banks to keep interest rates high colluding with other banks to keep interest rates high B. lending for long...
Discount rate ( interest rate that banks pay to borrow reserves from the Federal Reserve) is...

Discount rate ( interest rate that banks pay to borrow reserves from the Federal Reserve) is determined by -Federal Reserve Board of Governors -Federal Reserve banks -commercial banks
Suppose that the Federal Reserve purchases $100,000 in U.S. government bonds. Explain why this policy will...

Suppose that the Federal Reserve purchases $100,000 in U.S. government bonds. Explain why this policy will have a similar effect on the money supply as the $100,000 deposit into U.S. banks.

The Federal Reserve System sell $200 government bonds to a commercial bank. The commercial bank pay...

The Federal Reserve System sell $200 government bonds to a commercial bank. The commercial bank pay by vault cash. How is it going to change the Federal Reserve’s balance sheet? Banking System Assets Liabilities Securities Reserves Federal Reserve System Assets Liabilities Securities Reserves

When the Federal Reserve purchases government treasury bonds from commercial banks, we can expect interest rates...

Homework Answers

Add Answer to:
When the Federal Reserve purchases government treasury bonds from commercial banks, we can expect interest rates...

Post as a guest

Earn Coins

1.67 pts When the Federal Reserve purchases government treasury bonds from commercial banks, we can expect...

Problem 1: Commercial Banks (5pts) 1a. (1pt) We can think of commercial banks as trading bonds...

Problem 1: Commercial Banks (5pts) 1a. (1pt) We can think of commercial banks as trading bonds...

Let’s say the Federal Reserve buys $20 Billion in bonds from private banks: *Total reserve requirement...

a) Show the changes to the balance sheets for commercial banks when the Federal Reserve buys...

When the Federal Reserve Banks decide to buy government bonds from banks and the public, the...

1.The Fed purchases $100,000 of U.S. government securities from One Bank. Assuming the desired reserve ratio...

Discount rate ( interest rate that banks pay to borrow reserves from the Federal Reserve) is...

Suppose that the Federal Reserve purchases $100,000 in U.S. government bonds. Explain why this policy will...

The Federal Reserve System sell $200 government bonds to a commercial bank. The commercial bank pay...

When the Federal Reserve purchases government treasury bonds from commercial banks, we can expect interest rates...

Homework Answers

Add Answer to: When the Federal Reserve purchases government treasury bonds from commercial banks, we can expect interest rates...

Post as a guest

Earn Coins

Add Answer to:
When the Federal Reserve purchases government treasury bonds from commercial banks, we can expect interest rates...