Question

1. Suppose the Fed wanted to engage in an expansionary monetary policy. Which of the following should it do?

   	a.	Increase the reserve requirement ratio.
   	b.	Buy bonds on the open market.
   	c.	Sell bonds on the open market.
   	d.	Lower taxes.
   	e.	Increase the discount rate.

2. The interest rate at which banks can borrow funds from the Fed is known as…

   	a.	the federal funds rate.
   	b.	the discount rate.
   	c.	the prime rate.
   	d.	the real interest rate.
   	e.	None of the above

3. The most important policy tool for the Federal Reserve is…

   	a.	changing the money multiplier.
   	b.	changing the discount rate.
   	c.	engaging in open market operations.
   	d.	increasing deficit spending.
   	e.	setting the required reserve ratio.

4. Monetary policy impacts GDP mainly through its effect on…

   	a.	taxes.
   	b.	investment.
   	c.	net exports.
   	d.	government spending.
   	e.	consumption.

5. Which one of the following actions by the Federal Reserve would likely decrease the money supply?

   	a.	The Fed reduces the discount rate
   	b.	The Fed increases the reserve requirements for banks
   	c.	The Fed purchases government bonds on the open market
   	d.	The Fed increases the monetary base
   	e.	None of the above

6. What share of their checkable deposits are banks required to keep as reserves by the Fed? [b]

Answer 1

1) Buy bonds on the open market

option(B)

2) the federal funds rate.

option(A)

3) engaging in open market operations

option(C)

4) investment.

option(B)

5) The Fed increases the reserve requirements for banks

option(B)

6) Reserve requirement