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(A)Show the Effects of Expansionary and Contractionary Open Market Operations

question 35

Essay

(a)Show the effects of expansionary and contractionary open market operations on the interest rate using demand and supply curves and the market for government bonds.
(b)What should the Fed do if the interest rate is below its target rate? What should the Fed do if the interest rate is above its target rate?


Definitions:

Cement

A binding material, often used in construction, made by grinding calcined limestone and clay to a fine powder which hardens when mixed with water.

Quarries

Open-pit mining operations where stone, limestone, marble, or other materials are excavated for building and decorative uses.

Mudcracks

Cracks in clay-rich soil or sediment that occur as it dries, typically indicating past water presence.

Bedding

The formation of parallel layers of sediment as they accumulate over time, indicating successive periods of deposition.

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