How can the Fed increase the level of output for the economy through open market operations?
What will be an ideal response?
When the Fed buys bonds through open market operations, the money supply increases. If the money demand curve is downward-sloping, the increase in the money supply curve will cause interest rates to decrease. Lower interest rates may induce a higher level of investment and consumer-financed spending. Increased investment (and consumption) spending causes the aggregate demand curve to shift to the right, and the equilibrium output level increases.
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Faster long-term growth can be achieved by discouraging saving and encouraging consumption
Indicate whether the statement is true or false
Which of the following would decrease the value of money?
a. Money demand exceeds money supply b. The Federal Reserve sells government bonds c. The velocity of money decreases d. The price level decreases