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(A)Show the Effects of Expansionary and Contractionary Open Market Operations

Question 228

Essay

(a)Show the effects of expansionary and contractionary open market operations on the interest rate using demand and supply curves and the market for government bonds.
(b)What should the Fed do if the interest rate is below its target rate? What should the Fed do if the interest rate is above its target rate?

Correct Answer:

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(a)An open market purchase (expansionary...

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