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    Federal Reserve and the Sale of Bonds

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    If the Federal Reserve were to sell bonds, what would likely happen to the money supply and interest rates? Carefully Explain (the money market graph would help). Using the AS/AD model what do you predict will happen to the level of Real GDP and the Price level in the U.S. in the Short-Run and Long-Run? Carefully Explain (a graph would help).

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    By selling bonds the Fed causes interest rates to rise and the money supply to contract. Higher interest rates slow down the economy, by discouraging ...

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    This solution helps with a problem involving federal reserve and sale of bonds.