During the Christmas shopping season, the demand for money increases significantly. To offset the increase in...
During the Christmas shopping season, the demand for money increases significantly. To offset the increase in money demand, the Fed must ______ the money supply, which will put ______ pressure on nominal interest rates.
Homework Answers
Fill in the blanks:
1st one: increase
2nd one: downward
Explanation: since there is the increasing money demand, the central bank of the country (Fed) must increase the supply of money in the market; it could be done by purchasing bonds in open market, printing notes, etc.
Once such supply increases, people would be having enough money in their hands; it decreases the urge of taking loan from banks, which decreases bank interest rate and creates downward pressure.
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