Respuesta :
If the Fed sells bonds, the short-run impact of this policy will tend to include: an increase in real interest rates. An expansionary monetary policy is likely to increase real output more than just temporarily: when the economy is operating at less than full capacity.
What happens when the Fed sells bonds?
The Fed reduces the amount of money available when it sells bonds during open-market operations. The interest rate the Fed pays on reserves can be lowered if it wants to expand the money supply.
The short-term effects of this policy, should the Fed sell bonds, will typically involve an increase in real interest rates. When the economy is not at full capacity, an expansionary monetary policy is more likely to enhance real output permanently.
By exchanging bonds for cash from the general public and purchasing bonds on the open market, the Fed boosts the amount of money in circulation in the economy. On the other hand, by withdrawing cash from the economy in exchange for bonds when the Fed sells bonds, it reduces the money supply.
If the Fed sells bonds, an increase in real interest rates will likely be one of the short-term effects of this strategy. When the economy is not working at full capacity, an expansionary monetary policy is likely to enhance real output more than just temporarily.
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