How are the assets and liabilities changed for a bond dealer, the bond dealer's bank, and the Fed when the Fed buys $100,000 in bonds?
What will be an ideal response?
The bond dealer trades a bond for a transactions deposit of $100,000. That is, the form of the assets change but not the total value. Assets and liabilities of the bank increase by $100,000 since transaction deposits increase when the Fed deposits the funds, and the bank's reserves increase by the same amount. The assets of the Fed increase by $100,000 when it buys the bond and its liabilities increase by $100,000 because reserves of the bank on deposit with the Fed increase. The money supply increases as the bond is converted into money.
You might also like to view...
The methods that governments use to support farmers vary, but they almost always involve some or all the following methods EXCEPT
A) pay farmers a subsidy. B) introduce a price floor. C) isolate the domestic market from global competition. D) tax farmers. E) use price supports.
International trade based solely on internal scale economies in both countries is likely to be carried out by
A) monopolists in each country. B) a relatively large number of price competing firms. C) a relatively small number of price competing firms. D) a relatively small number of imperfect competitors. E) a large number of oligopolists in each country.
How does a competitive firm's demand for labor react to a specific tax on each unit of output it sells?
What will be an ideal response?
Wages often respond slowly to changes in output
a. True b. False