Asked by Matthew Pereira on May 12, 2024
Verified
In 2010 the U.S. government was running a large deficit. Some were concerned that pressures might be put on the Federal Reserve to purchase government bonds to help the government finance this deficit. If the Fed were to buy government bonds to help the government finance its expenditures, then the price level would
A) fall, so the value of money would fall.
B) fall, so the value of money would rise.
C) rise, so the value of money would fall.
D) rise, so the value of money would rise.
Federal Reserve
The central banking system of the United States, responsible for monetary policy, regulating banks, and ensuring the stability of the financial system.
Government Bonds
Debt securities issued by a government to finance its spending, offering a way for investors to lend money to the government in exchange for interest payments.
Price Level
The price level is a measure of the average prices of goods and services in an economy at a given time, often used to evaluate inflation or deflation.
- Comprehend the effects of the Federal Reserve's measures on the money supply and their repercussions on money's worth.
Verified Answer
MI
Muhammad Ibrahim
May 15, 2024
Final Answer :
C
Explanation :
When the Federal Reserve buys government bonds, it increases the money supply in the economy, which can lead to inflation. As the price level rises, the value of money falls because each unit of currency buys fewer goods and services.
Learning Objectives
- Comprehend the effects of the Federal Reserve's measures on the money supply and their repercussions on money's worth.