1. to produce financial stability, the federal reserve would want to a) increase

ID: 1176845 • Letter: 1

Question

1. to produce financial stability, the federal reserve would want to

a) increase the money supply during an economic boom and reduce the money supply during a recession

b) raise the interest rate during a recession to prevent excessive borrowing and increase income for struggling banks

c) sell bonds during a recession and buy bonds during an economic boom.

2) Reducing the fed funds rate can increase GDP in the short term because at lower interest rates

a) individuals and businesses will want to borrow and spend more

b) households will attempt to save more

c) banks will earn greater profits on loans

d) taxes are lower, which increases disposable income

3) Like private borrowers, governments

a) can raise taxes to pay off their debts

b) do not, in the long run, have to pay back their debts

c) regulate the industries through which they borrow

d) have to pay interest on their debts

1).

c) sell bonds during a recession and buy bonds during an economic boom.

2).a) individuals and businesses will want to borrow and spend more

3).d) have to pay interest on their debts

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