Asked Nov 26, 2019

 Trace the impact of a sale of government bonds by the Central bank on bond prices, interest rates, investment, aggregate demand, real GDP, and the price level.


Expert Answer

Step 1

The sale of government bonds by the Central bank will lead to a rise in the supply of bonds in the market. Now, with an increase in the supply of bonds in the market with an unchanged demand for bonds, the bond prices fall.

The sale of bonds will lead to a fall in the money supply as the Central bank will receive money in return for the bonds given to the people. Now with reduced money supply and unchang...

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