Question

Why would the US government purchase government securities from private bond holders ?

Answer 1

Answer:

Government Securities have constructive impact on the business environment and economic development of any nation in the following reasons :

• Low default risk: Government securities are considered low-risk investments because they are backed by the taxing power of a government. Investment in U.S. treasury securities is probably the safest investment.

• Government securities are issued is to raise funds for government expenditures. The federal government issues Treasury securities to cover shortfalls (deficits) in its annual budget.

• Controlling Money Supply: If the Federal Reserve wants to slow the growth rate of money in the economy, it will sell government securities. This means that it is sucking up dollars from the economy and replacing them with government securities, which results in a slowing of the rate of growth in the money supply. Slowing the rate of money's growth in an economy will help keep inflation under control.

• Some government securities are exempt from state and local taxes.

Explanation: