Suppose that, due to an unexpected decline in federal income tax collections, the Treasury is compelled to borrow an extra $40 billion to cover planned expenditures in the current government budget. What would be some of the possible effects of this additional borrowing on the financial markets and the economy?© BrainMass Inc. brainmass.com October 25, 2018, 4:15 am ad1c9bdddf
Having to sell more government bonds will decrease the price of the current bonds as there is now more supply of bonds available. But to persuade bond holders to take this extra supply of bonds, the government most likely will have to offer higher interest rates ...
Having to sell more government bonds will .....
Fed Practicies and Policies
1. Who issues (supplies) Treasury securities and why?
2. Who supplies reserves and why?
3. If the Fed increases its loans to banks at the discount window, what component of reserves rises?
4. If the Fed buys Treasury securities in the open market, what component of reserves rises?
5. Based on the answers above, explain the difference between non-borrowed reserves and borrowed reserves.
6. What are the net technical factors affecting reserves?
7. What is the federal funds market?
8. Why is the federal funds rate an indicator of monetary policy when it is the interest rate banks charge each other and is not set by the Treasury or the Federal Reserve?
9. True or false and explain: Other things equal, an increase in currency in circulation will cause the money supply to fall.View Full Posting Details