Question

When the Federal Reserve conducts an expansionary monetary policy, what happens to the money supply? How does this affect the supply of dollar assets?

Short answer

An expansionary monetary policy will move the supply of dollar assets to one side from the first inventory bend $\left({\mathrm{S}}_0\right)$to the new supply bend $\left({\mathrm{S}}_1\right)$and to another harmony of $\text{E1}$lessening the financing cost from $8\%$to $6\%$.

Step-by-step solution

Concept Introduction

Expansionary monetary policy works by growing the cash supply quicker than expected or bringing down transient loan fees. It is sanctioned by national banks and occurs through open market activities, save prerequisites, and setting loan costs.

Manages the Money Supply

This fundamentally includes purchasing government securities (growing the money supply) or selling them (getting the money supply). In the Federal Reserve System, these are

known as open market activities, because the national bank trades government securities in broad daylight markets. The vast majority of the government securities traded through open market activities are financial government securities traded from the Federal Reserve System part banks and enormous monetary establishments. At the point when the national bank dispenses or gathers installment for these securities, it adjusts how much money is in the economy while at the same time influencing the cost (and in this way the yield) of transient government securities. The adjustment of how much money is in the economy thusly influences interbank loan fees.

The supply of dollar assets 

This is a general sense incorporates buying government protections (developing the cash supply) or selling them (getting the cash supply). In the Federal Reserve System, these are known as open market activities, because the public bank exchanges government protections open-air markets. By far most of the public authority protections exchanged through open market activities are flashing government protections exchanged from the Federal Reserve System part banks and tremendous financial foundations. Exactly when the public bank apportions or accumulates a portion for these protections, it changes how much cash is in the economy while simultaneously impacting the expense (and in this way the yield) of transient government protections. The change of how much cash is in the economy along these lines impacts interbank advance charges.

Final Answer

An expansionary monetary policy will move the supply of dollar assets to one side from the first inventory bend $\left({\mathrm{S}}_0\right)$to the new supply bend $\left({\mathrm{S}}_1\right)$and to another harmony of $E1$lessening the financing cost from $8\%$to $6\%$