1) Which of the following is true? a) To tackle inflation, the Fed sells treasur
ID: 1155121 • Letter: 1
Question
1) Which of the following is true?
a) To tackle inflation, the Fed sells treasury bills, thereby decreases the money supply.
b) To tackle inflation the Fed purchases treasury bills, thereby decreases the money supply.
c) To tackle inflation the Fed sells treasury bills, thereby increases the supply of Treasury bills.
d) None of the above.
e) a and c.
2) Which of the following is true?
a) The negative relationship between the FFR and the price of treasury bills is a result of a change in the demand of treasury bills.
b) The price of treasury bills is likely to increase in the time of inflation because the Fed increases the demand of treasury bills.
c) The price of treasury bills is likely to decrease in the time of inflation as a result of an increase in the supply of treasury bills.
d) a and b.
e) a and c.
3) Regulating the banking system is necessary
a) Because the banking system determines the money supply and money supply affects private investment.
b) To make sure that fiscal policy is not influenced mainly by profit minded banks.
c) b and a.
d) None of the above.
4) Open market operations in the time of inflation
a) Refers to selling treasury bills in order to decrease interest rate.
b) Refers to buying treasury bills in order to increase money supply
c) Refers to buying treasury bills in order to decrease the interest rate.
d) Refers to selling treasury bills in order to decrease the supply of reserves.
e) None.
Explanation / Answer
a) "E"
TO tackle inflation the FED sells the treasury bills and this also increases the supply of treasury bills in the market.
b) "C"
The price of the treasury bill is likely to decrease because the supply of treasury bills will increase at the time of inflation.
c) Regulating the money supply is important because it can influence the private investment by increasing or decreasing the interest rates. The answer is "A".
d) "E"
IT refers to selling the treasury bills in order to increase the interest rates.
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