33. In the short run, open-market purchases

a. increase investment and real GDP, and decrease nominal interest rates.

b. increase real GDP and nominal interest rates, and decrease investment.

c. increase investment and nominal interest rates, and decrease real GDP.

d. decrease investment, nominal interest rates, and real GDP.

Question

Business

Taliyah George

14 May, 10:46

33. In the short run, open-market purchases

a. increase investment and real GDP, and decrease nominal interest rates.

b. increase real GDP and nominal interest rates, and decrease investment.

c. increase investment and nominal interest rates, and decrease real GDP.

d. decrease investment, nominal interest rates, and real GDP.

+1

Answers (1)

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Landen · Answer 1

The correct option here is A) increase in investment and real GDP, and decrease in nominal interest rate.

Explanation:

When a country's central or apex bank buy or sells the government securities from the open market to either expand or contract the money supply in the economy, that is know as open market operations.

When open market purchases are done in short run, then it leads to increase in the money supply in the economy, banks have more money to spend on loan and this leads to decrease in interest rate and cost of borrowing. When the interest rates are less, more borrowers would want investment or loans for their projects, so this is the way by which open market purchases would lead to increase in investment, employment and output.