1998 increase/decrease % November 17 25 4.75 October 18 25 5.00 September 29 25

Question

1998                                      increase/decrease                       %

November 17                                    25                                   4.75

October 18                                      25                                    5.00

September 29                                  25                                    5.25

1. Look at this data from the Federal Reserve, showing the changes it made to the federal funds target rate in 1998. What type of monetary policy was it following?

a. expansionary monetary policy

b. contractionary monetary policy

c. expansionary fiscal policy

d. contractionary fiscal policy

2. In question #2, above, the Federal Reserve was most likely responding to:

a. a recessionary gap

b. an inflationary gap

3. The reserve requirement is 0.10. If the Federal Reserve buys $15,000,000 worth of government securities, then the maximum change in the money supply (from both the Federal Reserve and the banking system) is $___________________. Show your work here:

4. In question #3, above, the Federal Reserve created $15,000,000. How much can the banking system create from that initial $15,000,000 injection? $___________________.

Explanation / Answer

1

Ans

a

because as the reserve fund decreases then it comes into the market and increses the supply of money and it is the definition of expansionary monetary policy

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