1). Which of the following is true? a) The negative relationship between the FFR

ID: 1156778 • Letter: 1

Question

1). 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.

2).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.

3). There is a negative relationship between the interest rate and the price of treasury bills because

a) When treasury bills become more expensive, the effective return to their holders increases.

b) When treasury bills become more expensive, the effective return to their holders decreases.

c) When treasury bills become cheaper, the effective return to their holders increases.

d) When treasury bills become cheaper, the effective return to their holders decreases.

e) b and c.

4). 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.

5). Which of the following is true?

a) The money multiplier is easily calculated by the Fed.

b) Monetary policy is usually not successful because the government cannot control its expenditures.

c) Monetary policy can no longer fix the economy because the Fed cannot precisely calculate the money multiplier.

d) None of the above.

Ans

1 only c is right. To counter inflation fed sells securities to reduce money supply. Since supply increases price falls

2 D. Same reason as above

3 E is right

4 c is right. Reserve supply also depends on excess reserves kept by banks

5 A is right. Fed can estimate it and does so

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