An open market purchase of securities by the Fed leads to all of ...

[HCHenry]

An open market purchase of securities by the Fed leads to all of the following EXCEPT
 
  A) an initial increase in excess reserves.
  B) an increase in bank lending.
  C) a decrease in the quantity of money.
  D) an increase in banks' reserves.
  E) an increase in the monetary base.

Question 2

Distinguish between two kinds of asymmetric information.
 
  What will be an ideal response?

[wergv]

Answer to Question 1

C

Answer to Question 2

One type of information asymmetry occurs when one party in a transaction observes some characteristics of the good or service that the other does not. In this case, the good is said to have hidden characteristics. Another kind of information asymmetry occurs when one party in a transaction takes actions that are relevant to but not observed by the other party. Such actions are called hidden actions.