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ECON 201 Sections 2 & 3, Winter 2025 practice exam

Multiple dropdown selections

If the economy is in a recessionary gap, the Federal Reserve will buy Treasury bills, which will increase the money supply and lower interest rates. This is shown in panel (a) .

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The question describes a scenario where the Federal Reserve uses open market operations to counter a recessionary gap. Now, I’ll go option by option to explain why each piece fits or doesn’t fit. Option 1: buy In this context, the Federal Reserve buys Treasury bills as a monetary policy tool. This action injects reserves into......Login to view full explanation

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