1.) A $50 million discount loan by the Fed will ______ the money supply by _____

Question

1.) A $50 million discount loan by the Fed will ______ the money supply by _______

A) increase; $50 million.

B) increase; $50 million times the money multiplier.

C) decrease; $50 million.

D) decrease; $50 million times the money multiplier

E) increase; an amount between $0 and $50 million, depending on the fraction of the purchase the public wishes to hold as currency

2.) Everything else held constant, a decrease in checkable deposit balances will mean ________ in the M2 money multiplier

      and ________ in the M2 money supply.

A) an increase; an increase                                                                 B) an increase; a decrease

C) a decrease; an increase                                                                  D) a decrease; a decrease

3.) The President of the United States appoints the

A) directors of the Federal Reserve regional banks.

B) presidents of the Federal Reserve regional banks.

C) members of the Board of Governors of the Federal Reserve.

D) each of the above.

Explanation / Answer

1) Solution: increase; $50 million.

Explanation: A discount loan by the Fed to a bank results to an increase in reserves in the banking system and thus leads to an increase in the monetary base

2) Solution: a decrease; a decrease

Explanation: Everything else held constant, a fall in the currency-checkable deposit ratio will mean fall in money supply; and fall in money multiplier

3) Solution: members of the Board of Governors of the Federal Reserve

Explanation: The U.S. president appoint the members of the Board of Governors while banks’ boards of directors are appointed by Presidents of the Federal Reserve regional banks

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