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Why won't the FED buy bond in the open market as of right now? |
If the FED buy bond in the open market from commercial bank, bank are now holding an additional in excess reserves which they can use to extend additional credit. To induce borrowers, bank are likely to lower interest rates and credit standards. As loan are made, the money supply will expand. The additional credit will stimulate additional spending, primarily for investment goods. On the other hands, bonds could be purchased directly from private individuals. Private individuals would then deposit the proceeds in their bank account. After the money is deposited, the banks are now holding excess reserves which they can use to extend credit. Lower interest rates, a greater money supply and a higher level of total expenditure will result. Lack of Clarity. |
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