Question

1. Which of the following Fed policies would be appropriate in a recessionary gap?

a) Open market purchases to lower the Federal Funds rate

b) Raise the reserve requirement

c) Raise the discount rate

d) All of the above

2. To decrease the money supply, the Fed can:

a) conduct open market sales

b) decrease the reserve requirement.

c) decrease the discount rate

d) Both B and C are correct

Answer 1

a) "A"

Open market purchases to lower the federal fund rate is an appropriate measure the alleviate the recessionary gap in the market.

b) "A"

the Fed can do open market sales that will decrease the money supply in the market.