« previous next »

Author Question: When the Fed is concerned with an inflationary gap it buys government securities. Is the previous ... (Read 87 times)

debasdf

  • Hero Member
  • *****
  • Posts: 570
on: Jun 29, 2018
When the Fed is concerned with an inflationary gap it buys government securities. Is the previous statement correct or incorrect? Explain your answer.
 
  What will be an ideal response?

Question 2

Resources that ________ protected by well-defined property rights are in ________ of being depleted.
 
  A) are; great danger
  B) are; absolutely no danger
  C) are not; the greatest danger
  D) are not; little danger


dantucker

  • Sr. Member
  • ****
  • Posts: 346
Reply #1 on: Jun 29, 2018
Answer to Question 1

The statement is incorrect. An inflationary gap occurs when real GDP exceeds potential GDP. In this case, the Fed wants to decrease aggregate demand and thereby decrease real GDP. In order to decrease aggregate demand, the Fed needs to raise the federal funds rate. But when the Fed buys government securities, it lowers the federal funds rate. Therefore the proper Fed policy when it is concerned about an inflationary gap is to sell government securities and thereby raise the federal funds rate.

Answer to Question 2

C


Related Topics

Need homework help now?

Ask unlimited questions for free

Ask a Question
« previous next »
 

Did you know?

More than 150,000 Americans killed by cardiovascular disease are younger than the age of 65 years.

Did you know?

Your skin wrinkles if you stay in the bathtub a long time because the outermost layer of skin (which consists of dead keratin) swells when it absorbs water. It is tightly attached to the skin below it, so it compensates for the increased area by wrinkling. This happens to the hands and feet because they have the thickest layer of dead keratin cells.

Did you know?

Elderly adults are at greatest risk of stroke and myocardial infarction and have the most to gain from prophylaxis. Patients ages 60 to 80 years with blood pressures above 160/90 mm Hg should benefit from antihypertensive treatment.

Did you know?

When blood is exposed to air, it clots. Heparin allows the blood to come in direct contact with air without clotting.

Did you know?

Though methadone is often used to treat dependency on other opioids, the drug itself can be abused. Crushing or snorting methadone can achieve the opiate "rush" desired by addicts. Improper use such as these can lead to a dangerous dependency on methadone. This drug now accounts for nearly one-third of opioid-related deaths.

This chart illustrates the bottom up assumption about government. In this, attitudes, culture, and This chart illustrates the bottom up assumption about government. In this, attitudes, culture, and
In 2013, Americans learned that the federal government massively surveys their phone calls and e-mai In 2013, Americans learned that the federal government massively surveys their phone calls and e-mai
In the summer of 1793, a yellow fever epidemic struck Philadelphia, killing nearly 4,000. Tens of th In the summer of 1793, a yellow fever epidemic struck Philadelphia, killing nearly 4,000. Tens of th
A passenger train crosses Stony Creek Bridge in the Rocky Mountains in 1878. Railroads were importan A passenger train crosses Stony Creek Bridge in the Rocky Mountains in 1878. Railroads were importan
The fiscal policy to counter an inflationary gap is a(n) The fiscal policy to counter an inflationary gap is a(n)
Nick buys a $25 000, 5.4% bond with quarterly interest coupons, 3 years before maturity, to ... Nick buys a $25 000, 5.4% bond with quarterly interest coupons, 3 years before maturity, to ...
Video: Pressure Flow Model Animation

For a complete list of videos, visit our video library