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    Buying bonds

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    Illustrate the following situations using supply and demand curves for money:

    a) The Fed buys bonds in the open market during a recession.
    b) During a period of rapid inflation, the Fed increases the reserve requirement.
    c) During a period of no growth in GDP and zero inflation, the Fed lowers the discount rate.

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    Solution Preview

    (a) Buying bonds increases money supply thus shifting the money supply curve to the right. See (A) in the attached figure. This increases the ...

    Solution Summary

    Lowering discount rates is assessed.