Which of the following statements is most correct if the Fed sees no need to engage...
Which of the following statements is most correct if the Fed sees no need to engage in expansionary monetary policy?
A. The Fed will likely shrink its balance sheet rapidly.
B. Eventually, the Fed will shrink its balance sheet by letting securities it holds expire.
C. It will be impossible for the Fed to shrink its balance sheet.
D. The Fed is likely to increase the size of its balance sheet.
Homework Answers
B. Eventually, the Fed will shrink its balance sheet by letting securities it holds expire.
Explanation: If the Fed sees no need to engage in expansionary monetary policy, it will not buy new securities and the old securities held by it will mature and dissolve over time. This way the Fed's balance sheet will shrink.
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