1) Which of the following is correct? a) The Fed can precisely target the money
ID: 1153882 • Letter: 1
Question
1) Which of the following is correct?
a) The Fed can precisely target the money supply but not the interest rate.
b) The Fed can precisely target the interest rate but not the money supply.
c) The Fed can precisely target the money supply but not the supply of reserves.
d) The Fed can precisely target the supply of reserves but not the money supply.
e) b and d.
1.1) Which of the following is correct?
a) The Fed can precisely target the money supply because it can exactly determine the money multiplier.
b) The Fed can precisely target the interest rate because it can exactly determine the money multiplier.
c) The Fed cannot precisely target the money supply because it cannot exactly determine the money multiplier.
d) The Fed cannot precisely target the supply of reserves because it cannot exactly determine the money multiplier.
e) c and d.
2) If the rate of required reserves is 0.1, then the money multiplier is approximately
a) 5
b) 4
c) 10
d) 0.1
3) If the rate of required reserves is 0.2, then
a) A 2 percent increase in the interest rate increases the money supply by 4 percent.
b) A 2 percent increase in the interest rate decreases the money supply by 4 percent.
c) A 1 dollar increase in the reserves increases the money supply by 5 dollars.
d) A 1 dollar increase in the money supply increases the reserves by 5 dollars.
4) Which of the following is NOT an example of expansionary monetary policy?
a) A reduction in the rate of required reserves.
b) Buying treasury bills.
c) Lending to banks.
d) Decreasing the interest rate.
e) All are examples of expansionary monetary policy.
Explanation / Answer
4) A reduction in reserves will increase the money multiplier and will increase the money supply.Buying treasury bills will give more liquidity in the market and thus increases money supply. Lending to banks is also a expansionary monetary policy. Decreasing interest rate will loan out more fund and thus all of them increases money supply
Thus ans is E
3 )If r=0.2 then multiplier=1/r=1/.2=5=change in MS/change in reserve money. Ans is C
2)C money multiplier=1/r=1/0.1=10
1)ans is C because actual reserves=required reserves+excess reserves
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