Answer to Question #201574 in Macroeconomics for Nilüfer Gezen

Question

Suppose the nation’s Central Bank (CB) decides to engineer an increase in the nation’s money supply, and begins the process of money supply expansion with an open market operation (OMO), in which the CB purchases 400,000 ₺ worth of Treasury securities (ie. Government bonds) from Household j (HH j). The CB pays 400,000 ₺ in cash to HH j, in exchange for the Treasury securities owned by Household j (HH j). a) Concisely explain the concept of a Treasury security (government bond). b) Concisely explain the increase in the nation’s money supply at this point.

Answer 1

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