Suppose that the central bank sells government bonds. Use a graph of the money market to show what this does to the value of money and price level.
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Suppose that the central bank sells government bonds. Use a graph of the
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- Briefly explain how banks can optimize their position through managing their use of currencies?Explain in detail the function played by the money market in the financial market.When any central bank wanted to increase the money supply and loosen credit conditions, what would it do in the private market for government bonds? Explain how this is supposed to affect the economy.
- All else being equal, if a central bank buys government bonds from the market it would: a. mean savings in the economy are likely to increase. b. mean the supply of loanable funds would move to the left. c. increase the money supply. d. increase interest rates.Which of the following will have the same effect on money supply as raising the reserve requirement? a) The central bank decreases the interest rate. b) The central bank purchases bonds in the market. c) The central bank purchases securities and debentures in the market. d) Lower bond prices.How do you think the shape of the yield curve for commercial paper and other money market instruments compares to the yield cure for treasury securities? Explain your own interpretation. Many financial institutions borrow heavily in the money markets using mortgages and montages backed securities as collateral. How do you explain the impact of the credit crisis on deficit and surplus units that participate in the money market? Do you think that the money market should be regulated to ensure proper collateral in the money market? Can you explain how activities in the secondary T-bill market are conducted? How can this kind of activity benefit investors in T-bills? Why might a financial institution sometimes consider T-bills as a potential source of funds?
- Which of the following is a tool that is used by the central bank to control the quantity of money? *a. gdpb. excess reservec. open market operationsd. government expenditure multiplierExplain your understanding of money markets? Would you classify this as a financial market, financial instrument or financial institution? Give a reason for your answer.Discuss the importance of financial markets, then illustrate with a diagram the flow of funds from lenders to borrowers in a financial system.