« previous next »

Author Question: When the Fed is concerned with an inflationary gap it buys government securities. Is the previous ... (Read 74 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?

For pediatric patients, intravenous fluids are the most commonly cited products involved in medication errors that are reported to the USP.

Did you know?

In 1844, Charles Goodyear obtained the first patent for a rubber condom.

Did you know?

The use of salicylates dates back 2,500 years to Hippocrates’s recommendation of willow bark (from which a salicylate is derived) as an aid to the pains of childbirth. However, overdosage of salicylates can harm body fluids, electrolytes, the CNS, the GI tract, the ears, the lungs, the blood, the liver, and the kidneys and cause coma or death.

Did you know?

The U.S. Preventive Services Task Force recommends that all women age 65 years of age or older should be screened with bone densitometry.

Did you know?

Most strokes are caused when blood clots move to a blood vessel in the brain and block blood flow to that area. Thrombolytic therapy can be used to dissolve the clot quickly. If given within 3 hours of the first stroke symptoms, this therapy can help limit stroke damage and disability.

This modified model of Easton’s systems theory puts government decision makers as the source of pol This modified model of Easton’s systems theory puts government decision makers as the source of pol
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 2009, historian Woody Holton described how Abigail Adams shrewdly invested in the Continental Con In 2009, historian Woody Holton described how Abigail Adams shrewdly invested in the Continental Con
Government in America: People, Politics, and Policy, AP Government in America: People, Politics, and Policy, AP
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 ...
A government of Ontario 364-day T-bills with a face value of $50 000 were purchased on January ... A government of Ontario 364-day T-bills with a face value of $50 000 were purchased on January ...
Video: Photosynthesis and Van Helmont Experiment

For a complete list of videos, visit our video library