Which of the following would be the FIRST change to occur when a central bank conducts open market purchases of bonds?

Choose 1 answer:
(A) The money supply increases
(B) The monetary supply decreases
(C) The interest rate decreases
(D) Aggregate demand increases
(E) Bank reserves increase

Question

Which of the following would be the FIRST change to occur when a central bank conducts open market purchases of bonds?

Choose 1 answer:
(A) The money supply increases
(B) The monetary supply decreases
(C) The interest rate decreases
(D) Aggregate demand increases
(E) Bank reserves increase

Accepted Answer

***E*** ∻Key Concept∻ ⚹Open Market Operations⚹ ∻Explanation∻ ⚹When a central bank conducts open market purchases of bonds, it buys bonds from the banks, which increases the banks' reserves immediately. This is the first change that occurs before any subsequent effects on the money supply, interest rates, or aggregate demand.⚹◊From a Macro Economics perspective, how do open market purchases by a central bank impact the money supply in an economy?⍭ Generate me a similar question◊

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