1) Assume the Fed creates excess reserves in the banking system by buying govern
ID: 1092871 • Letter: 1
Question
1) Assume the Fed creates excess reserves in the banking system by buying government bonds, but banks do not make more loans because economic conditions are bad. This situation is a problem of:
cyclical asymmetry.
a restrictive money policy.
the net export effect.
a decrease in the Federal funds rate.
2) A Federal Reserve official notes: "A restrictive monetary policy can force a contraction of the money supply, but an expansionary monetary policy may not achieve an expansion of the economy." The official has described the problem of the:
inflexibility of monetary policy tools. change in taxes on monetary policy. cyclical asymmetry of monetary policy. political acceptability of monetary policy.Explanation / Answer
cyclical asymmetry
cyclical asymmetry of monetary policy.
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