Ask Question
12 May, 16:23

To reduce the effects of "crowding out" caused by an increase in "government borrowing", the Federal Reserve could increase the money supply by selling bonds i ncrease the money supply by buying bonds decrease the money supply by selling bonds decrease the money supply by buying bonds

+3
Answers (1)
  1. 12 May, 17:59
    0
    increase the money supply by buying bonds

    Explanation:

    When the Fed buys government bonds, it increases the money supply (it prints money to buy the bonds, money that later enters the financial system, and its multiplied by commercial banks through lending).

    When the Fed increases the money supply, interest rates falls, because the supply of loanable funds is now higher, and the interest rate is the price of those funds (when the supply of a good goes up, its price goes down).

    A lower interest rate boosts investment, which is what is needed when it has been crowded-out by excessive government borrowing.
Know the Answer?
Not Sure About the Answer?
Find an answer to your question ✅ “To reduce the effects of "crowding out" caused by an increase in "government borrowing", the Federal Reserve could increase the money ...” in 📘 Business if you're in doubt about the correctness of the answers or there's no answer, then try to use the smart search and find answers to the similar questions.
Search for Other Answers