Question
monetary policy questions?
1. To offsent a recession the fed should: a. use contractionary monetary policy. b. decrease required reserves, decrease the discount rate, and/or buy u.s. government securities on the open market. c. increase required reserves, decrese the discount rate, and/or buy u.s. government securities on the open market. d. decrease bank's excess reserves to decrease the money supply. 2. Which of the following statement about the fed is true: a. the fed is run by the executive branch of government. b. the fed is completely insulated from political pressures c. the fed's most important duty is to control the money supply. d. the most important policy making body of the fed is the advisory council. 3. During an expansionary phase of the business cycle, fiscal policy and monetary policy can logically be coordinated to: a. run a deficit and increase the money supply. b. run a surplus and increase the money supply. c. reduce government spending, increase taxes, increase the discount rate, increase reserve requirements, and/or sell u.s. government debt on the open market. d. increase government spending, reduce taxes, decrease the discount rate, decrease reserve requirments, and/or buy u.s. government debt on the open market. 4. which o the following is true concerning the fed's tools to change the money supply. a. an increase in the reserve requirement will increase banks' excess reserves and increase the money multiplier. b. changing reserve requirements is potentially the most powerful tool and is therefool the tool that is most used. c. changing the discount rate is the most powerful tool because banks are not that fond of borrowing from the fed. d. open market operations refers to the ed's buying and selling of u.s. government securities and is the fed's most used tool. 5. suppose the required reserve ratio is 25 percent and there are no cash holdings. if the fed buys $2 billion of government securities from banks then: a. this will decrease banks' ecessreserves by $2billion. b. the amount of checkable deposits in the banking system and therefore the money supply could eventually increase by $8 billion. c. the fed is undertaking contractionary monetary policy. d. the interest rate will likely rise. sure, explanations would be helpful, thank you.
6 months ago - 1 answers
Best Answer
Chosen by Asker
1. b - Decreasing required reserves, decreasing the discount rate, and buying government securities increases the money supply. This can stimulate the economy (there's more money for people to spend), which means the recession will end sooner. 2. c - This is why the Federal Reserve was created: to control the money supply. 3. c - During an expansionary phase in the business cycle people are spending more money. This can cause prices to rise (businesses charge more when people have more to spend). Reducing government spending, increasing taxes, increasing the discount rate, increasing reserve requirements, and selling government bonds will reduce the money supply. This can help control inflation (prevent prices from getting too high). 4. d - Buying and selling government bonds on the open market is an easy way to control the money supply, so it is often used by the Fed. 5. b - The multiplier is the recipral of the reserve requirement. In this case the required reserve is 25% (1/4). That means the multiplier is 4. Therefore, if the Fed $2 billion in government securities from banks, the money supply could eventually increase by 4 x $2 billion = $8 billion. Does all of that make sense?
by Jane Doe
6 months ago
Asker's Rating: 