Asked by Kevin Simpson on Jul 28, 2024
Verified
If the Fed conducts open market sales, the equilibrium value of money decreases and the equilibrium price level increases.
Open Market Sales
Operations by a central bank to sell securities in the open market to decrease the money supply in the economy.
Equilibrium Value
A state in which market supply and demand balance each other, and, as a result, prices become stable.
Price Level
An index of the average prices of goods and services throughout an economy, often used to measure inflation.
- Understand the concept of monetary neutrality and its implications on real and nominal variables.
Verified Answer
DA
Doritha AgyemangAug 03, 2024
Final Answer :
False
Explanation :
Open market sales by the Fed reduce the money supply, which increases interest rates, leading to a decrease in investment and spending. This typically leads to a decrease in the price level, not an increase.
Learning Objectives
- Understand the concept of monetary neutrality and its implications on real and nominal variables.
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