7. Which of the following is correct? a) The Fed can precisely target the money

Question

7.  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.

8.  If the rate of required reserves is 0.1, then the money multiplier is approximately

a) 5

b) 4

c) 10

d) 0.1

9. 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.

10. 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

7. Option C

Explanation: The money supply depends on the money multiplier. The money multiplier is nearest to 1/reserve ratio. Since the Fed cannot exactly determine the multiplier, it cannot precisely target the money supply.

8. Option C

Explanation: Money multiplier = 1/reserve ration = 1/0.1 = 10

9. Option C

Explanation: Money multiplier = 1/reserve ration = 1/0.2 = 5. So, a $1 increase in the reserve would result in a $5 increase in the money supply.

10. Option E

Explanation: An expansionary monetary policy results in an increase in the money supply. All the given options result in an increase in the money supply.

Related Questions

Navigate

• Browse (All)
• Browse 7
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.