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Suppose you are a personal friend of the current chair of the Board of Governors of the Federal Reserve System (Jerome Powell, 2019). He comes over to your house for lunch and notices your couch. He is so struck by the beauty of your couch that he simply must have it for his office. He buys it from you for $1,000 and, since it is for his office, he pays you with a check drawn on the Federal Reserve Bank of New York.
1. Are there more dollars in the economy than before? Why?
2. Why do you suppose that the Federal Reserve doesn't buy and sell couches, real estate, and so on, instead of government bonds when they intend to change the money supply?

Sagot :

jepessoa

Answer:

1. Simply because Mr. Powell purchased your couch using a check from the FED doesn't increase the money supply. The money supply increases when the FED purchases bonds and infects new cash into the economy.

2. The money in the FED's check account is part of its budget, so it is already included in the monetary base. The FED carries out expansionary or contractionary monetary policy through government bonds because it results in new money being injected to the economy, or money being retrieved from the economy.

Explanation:

Federal Reserve System regulates the commercial banks and stabilizes the economy of the US being the central bank of the nation.

What is the impact of buying a couch against check?

When the person buys anything by using checks then it would not increase the money supply in the economy. It is because a check implies the transfer of money from one account to another.

Why FED buy and sell bonds?

FED would be enabled to increase the money supply in the economy as when it sells bonds to people they pay cash or their funds to purchase it that injects money in the economy.

Learn more about the Federal reserve system here:

https://brainly.com/question/24330544

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