Central banks buy and sell government securities instead of ...

[mydiamond]

Central banks buy and sell government securities instead of private company stocks and/or bonds, because:
 a. The purchase and sale of private company securities does not change a nation's monetary base. Only purchases or sales of government securities change the monetary base.
  b. Central banks have established communication systems only with the government.
  c. They might be accused of favoring one company over another.
  d. All the above.
  e. None of the above.

Question 2

Assume that the government increases spending and finances the expenditures by borrowing in the domestic capital markets. If the nation has low mobility international capital markets and a flexible exchange rate system, what happens to the real GDP and current international transactions in the context of the Three-Sector-Model?
 a. Real GDP falls, and current international transactions become more negative (or less positive).
  b. Real GDP rises, and current international transactions become more negative (or less positive).
  c. Real GDP and current international transactions remain the same.
  d. Real GDP rises, and current international transactions remain the same.
  e. There is not enough information to determine what happens to these two macroeconomic variables.

[kristenb95]

Answer to Question 1

.C

Answer to Question 2

.B