When the central bank of Guilder sells bonds, which of the following will occur?

Choose 1 answer:
(A) Reserves decrease; the monetary base increases
(B) Reserves increase; the monetary base decreases
(C) Reserves decrease; the monetary base decreases
(D) Reserves do not change; the monetary base increases
(E) Reserves decrease; the monetary base does not change

Question

When the central bank of Guilder sells bonds, which of the following will occur?

Choose 1 answer:
(A) Reserves decrease; the monetary base increases
(B) Reserves increase; the monetary base decreases
(C) Reserves decrease; the monetary base decreases
(D) Reserves do not change; the monetary base increases
(E) Reserves decrease; the monetary base does not change

Accepted Answer

∻Solution∻ ‖ a ⋮ Open Market Operations: When the central bank sells bonds, it is engaging in an open market operation aimed at reducing the money supply. ‖ ‖ b ⋮ Impact on Reserves: Selling bonds means that the central bank is taking money out of the banking system, which decreases the reserves held by commercial banks. ‖ ‖ c ⋮ Impact on Monetary Base: The monetary base, which includes reserves and currency in circulation, will also decrease because the central bank is effectively removing money from the economy. ‖ ∻Answer∻ ⚹ (C) Reserves decrease; the monetary base decreases ⚹ ∻Key Concept∻ ⚹ Open Market Operations ⚹ ∻Explanation∻ ⚹ When the central bank sells bonds, it reduces the reserves in the banking system and decreases the monetary base. This is a contractionary monetary policy aimed at reducing the money supply. ⚹◊How does selling bonds by the central bank affect reserves and the monetary base in the economy according to the Quantity Theory of Money in MicroEconomics⍭ Generate me a similar question◊

Sia