2) Which of the following is true? a) The negative relationship between the FFR
ID: 1155431 • Letter: 2
Question
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.
6) 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.
Explanation / Answer
2. The correct answer is (d) i.e. both a and b
3. Regulating the banking system is necessary because the banking system determines the money supply and money supply affects private investment. i.e. the correct answer id (a).
4. Open market operations in time of inflation refer to selling treasury bills in order to decrease interest rate. i.e. the correct answer is (a)
6. The correct answer is (e) i.e. both b and d
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