Multiple Choice 1. Assume that the money multiplier equals 2.5 and if the Fed pu

Question

Multiple Choice

1. Assume that the money multiplier equals 2.5 and if the Fed purchases $10 million in bonds from a bank, the monetary supply will:

2. The monetary base is defined as:

3. Which of the following means of financing federal government spending will increase the monetary base?

Short Answer

1. Assume the Federal Reserve Board is undertaking an expansionarymonetary policy. Explain the details of how the expansionary Fed impacts each of the following:

2. Under certain circumstances, expansionary Fed policy may not have much of an effect on the rate of economic growth. Give a reason why, and explain?

3. Regarding the Asian currency crisis, answer the following questions:

Explanation / Answer

1. fed purchased bonds hence gave 10million money to banks and as multiplier is 2.5

there will be increase in money supply of 25 million

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2 . answer the r is currency plus total banking reserves.'

3. selling bonds to feds will give money flow into the system from external source where as in other 3 money flow is from the same system only hence no change in monetary base

hence answer is selling bonds to the Fed.

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