If policy makers wanted to use both monetray and fiscal policy to help reduce a
ID: 1208338 • Letter: I
Question
If policy makers wanted to use both monetray and fiscal policy to help reduce a high rate of inflation, which of the following would be most appropriate? a larger budget deficit, the purchase of securities in the open market by the fed, and a higher discount rate a government budget surplus, the sale of securities in the open market by the fed, and a higher discount rate a larger government budget deficit, the sale of securities in the open market by the Fed, and a lower discount rate a government budget surplus, the purchase of securities in the open market by the Fed, and a lower discount rate A bank has $100 million of checkable deposits. $6 million of required reserves, and $2 million of excess reserves. What is the required reserve ratio? 2 percent 12 percent. 3 percent. none of the above 6 percent. An increase in the money supply: lowers the interest rate, causing a decrease in investment and an increase in GDP. lowers the interest rate, causing on increase in investment and a decrease in GDP lowers the interest rate, causing an increase in investment and an increase in GDP raises the interest rate, causing an increase in investment and an increase in GDP raises the interest rate, causing a decrease in investment and a decrease in GDP. A depreciation in the value of the U.S. dollar would. encourage foreigners to travel on American owned airlines make U.S. goods more expensive to foreign consumers decrease the number of dollars it takes to buy a Swiss franc make it more expensive for U.S. citizens to travel abroad If the Fed were to use all of its major domestic monetary control tools to increase the money supply, it would buy bonds, increase the discount rate, and increase reserve requirements. sell bonds, reduce the discount rate, and reduce reserve requirements buy bonds, reduce the discount rate, and reduce reserve requirements sell bonds, increase the discount rate, and increase reserve requirements. What interest rate docs a hank pay when it borrows reserves from the Fed? The discount rate. The federal funds rate. The prime rate. The required reserve rate On a certain dale the banking system had $2 billion in excess reserves. The legally required reserve ratio was 12.5 percent Potentially, if these funds were fully loaned out, the banking system as a whole could increase the money supply by a maximum of: $2 billion. $2.5 billion. $12.5 billion. $25 billion $16 billion When the Fed raises the required reserve ratio, it: lowers the cost of borrowing from the Fed, encouraging banks to make loans to the general public raises the cost of borrowing from the Fed, discouraging hanks from making loans to the general public. increases the amount of excess reserves that banks hold, encouraging them to make loans to the general public. increases the amount of excess reserves that banks hold, discouraging them from making loans to the general public. decreases the amount of excess reserv es that banks hold, discouraging them from making loans to the general public.Explanation / Answer
23.
The correct option is (C).
If inflation is high, the government can reduce its spending thereby removing itself from competing for resources in the market.
24.
The correct option is (C).
25.
The correct option is (C).
An increase in money supply gives more opportunities to consumers as it reduces the interest rate. So money supply indirectly raises the investment of that country. The total aggregate demand of that country increases for an increase in the money supply.
This will eventually raises the total output of the economy and can raise the price level. So rising price level leads to an inflationary pressure on the economy. So increase in money supply has direct effects on the growth of the economy and GDP.
26.
The correct option is (D).
27.
The correct option is (C).
If the Fed buys securities, it increases the money supply. A decrease in the reserve ratio will allow the bank to lend more, thereby increasing the supply of money.
29.
The correct option is (E).
Increase in the money supply = excess reserve ÷ required reserve ration
= 2 ÷ 12.5 = 0.16 or $16 billion
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