Describe the Channels Through Which Open Market Purchases by the Fed

question 51

Essay

Describe the channels through which open market purchases by the Fed affects output in an open economy.

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Definitions:

Average Fixed Cost

The fixed costs of production divided by the quantity of output produced. This decreases as production increases.

Total Variable Costs

Expenses that change in proportion to the activity of a business such as materials, labor, and utilities, which vary with the level of output.

Average Fixed Cost

Production's fixed expenses (unchanged by the amount of production) split by the quantity of product made.

Average Variable Cost

The cost that varies with the level of output, computed by dividing total variable costs by the quantity of output produced.