which of the following would be an example of expansionary monetary policy ? A)
ID: 1173674 • Letter: W
Question
which of the following would be an example of expansionary monetary policy ? A) buying securities in the open market B) decreasing reserve requirements C) reducing the discount rate D) all of the above E) none of the above 2) which of the following count as legal reserves ? A) vault cash B) account balances at the federal reserve banks C) U.S. treasury securities D) both A and B E) all of the above 3) which of the following would be considered an "operating target" that is directly affected by the federal reserve? A) the treasury bill rate B) the rate of inflation C) the federal funds rate D) M1 E) all of the above
Explanation / Answer
1) Solution: All of the above
When the economy is in recessionary gap, the Fed will adopt expansionary monetary policy with a target of increasing the aggregate demand and economic growth in the economy. It will increase money supply in the market through the purchase of securities, decreasing the discount rate and/or lowering the reserve rate
2) Solution: Federal fund rate
Explanation: The Federal fund rate is the rate at which one bank lends to another bank usually overnight; and it can be directly affected by the tools of FED. It acts as an operationally feasible target because it is easy for the Federal Reserve to reach it by feeding the reserve ratio into and out of the market
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