6. The discount rate is the a. Interest rate banks charge other banks b. The c.
ID: 1118388 • Letter: 6
Question
6. The discount rate is the a. Interest rate banks charge other banks b. The c. Interest rate the Fed charges to home buyers d. Interest rate the Fed charges banks for loans rate minus the inflation rate a. Open market operations b. Fiscal policy d. A and C above 18. If the Fed sells securities on the market a. The money supply increases and interest rates increase b. The money supply decreases and interest rates increase c. The money supply increase and interest rates decrease d. The money supply decreases and interest rates decrease 19. The body that is instrumental in making monetary policy decisions is known as the a. FDIC b. Treasury c. Federal Monetary Policy Commission d. Federal Open Market Committee 20. Which of the following Fed actions would decrease the money a. Decreasing the reserve ratio b. Increase the discount rate the federal funds rate d. Buying govenment securities 21. The interest rate banks charge other banks when they a. Federal funds rate c. Market Rate d. Federal discount rate 22. The sum of the currency and reserve deposits equals a. The money supply b. The monetary base c. M3 d. Exchange balance 23. Using your understanding of supply and demand, it the supply of money decreases, interest rates (the cost of money) a. Increase b. Decrease c. Stay the same d. Cannot be determinedExplanation / Answer
10) answer: d
Money multiplier determines the maximum amout of money that can be created by banks.
Money creation= (money multiplier)*(Change in high powered money)
Thus Money multiplier shows increase in money supply when bank reserves increase by 1 dollar.
11) answer: b
Money multiplier= 1/R where R is the reserve ratio.
Thus when R increases, multiplier decreases and hence Money supply decreases.
12) Answer: d
Interest rates determine the amount of borrowing activity in an economy. If interest rates are high, borrowing becomes less attractive and saving becomes more attractive. Hence demand for loans is lesser. Conversely, low interest rates boost lending and borrowing in an economy.
13) answer: a
Velocity of money is the number of times a dollar changes hands in a year. A high velocity means that the frequency of transactions between individuals in an economy is very high and a same dollar bill is used for different transactions very frequently.
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