29. An open market purchase by the Fed from a bank a. Increases bank reserves b.

Question

29. An open market purchase by the Fed from a bank a. Increases bank reserves b. Decreases bank reserves c Increases the bank's demand deposits immediately d. Reduces the bank's lending power 30. Which of the following monetary measures would best complement fiscal measures designed to stimulate aggregate demand during a period of high unemployment? a. An increase in reserve requirements b. The purchase of bonds by the Federal Reserve c. An increase in the Fed's discount rate d. An increase in margin requirements necessary to buy stock 31. A decrease in required reserves would Increase the money multiplier and spur monetary growth b. a. Decrease the money multiplier and spur monetary growth Increase the money multiplier and reduce monetary growth d. c. Decrease the money multiplier and reduce monetary growth 32. Which of the following does not represent one of the goals of the Federal Reserve? a. Balanced budget b. low inflation c. high employment d. economic growth 33. A tighter monetary policy is intended to a Slow the economy down in order to keep inflation in check b. Speed the economy up in order to have an expansionary effect on the economy Slow the economy down in order to have an expansionary effect on the economy d. c. Speed the economy up in order to keep inflation in check 34. If the government increased spending and borrowed the money to do it, some economists argue that aggregate demand wil not increase because of the a. Crowding-out effect b. Interest rate effect c. Wealth effect d. Income effect 35. Compared to the Aggregate Expenditure model, the Aggregate demand/Aggregate Supply a. b. c. d. e. Cannot show changes in prices as well Ignores aggregate demand More clearly shows distinctions between the short run and long run All of the above are correct Both a and c are true

Explanation / Answer

29 a) An open market purchase of securities by the Fed increase bank reserves, as the funds is deposited in banks.

30. b) Purchase of bonds by the Federal Reserve as money supply is injected into the economy. Higher investments will take place and increase employment.

31) a) money multiplier formula is 1/reserve ratio. A decrease in ratio will increase money multiplier.

32) a. Balanced budget is not a goal of the Fed.

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