Homework Answers
1. Option B
Explanation: The Fed conducts the monetary policy in the US and it primarily aims at controlling the money supply and the interest rate.
2. Option B. Larger, rises
Explanation: When reserve requirement rises, banks need to compulsorily hold a larger reserve. Therefore, banks have less amount of funds to lend and the interest rate goes up.
3. Option D. less falls.
Explanation: When banks can borrow at a lower cost to meet their reserve requirements that can increase their lending. So, the interest rate falls.
4. Option B. Decreases, rises
Explanation: When the Fed sells securities in the open market, the money flow from the banking system to the Fed and money supply lowers. So, there is less money with banks to lend and the interest rate goes up.
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