Question

What happens on the money balances market (the demand and supply for money) when the Federal Reserve conducts an open market purchase of bonds that is unanticipated. How will this impact the nominal interest rate and the quantity of money held by the public?

Answer 1

Decrease rates and increase in the supply of money.

Step-by-step explanation:

Base on the scenario been described in the question, operations, if the federal government wishes to increase the flow of money in the economy, what is does is that, it buys bonds from the open marke, in so doing, it disburse cash to economy through which the seller of the bonds will get and it will increase the money been increase in open market so money will enough in the hands of individuals.

Answer 2

Increased Money supply and decreased rates

Step-by-step explanation:

When the Federal reserve buys the bonds on the Open market operations, the cash is disbursed by the Fed to the seller of bonds which in case increases the money that is supplied in the market and hence the quantity of money held by general public. The interest rate will ultimately decrease as the money supply is more and people tend to spend more than save.

Hope this clear things up.

Goodluck.