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22. The money supply can be increased by decreasing the required reserve ratio. ____ 23. The Fed frequently uses the discount rate and the required reserve ratio as instruments of monetary policy. ____ 24. An increase in the money supply should cause the expenditure schedule to shift upward. ____ 25. A tax reduction shifts the consumption schedule downward. ____ 39. The years 2002 through 2007 can be described as a period of a. falling output accompanied by increasing inflation. b. falling output accompanied by decreasing inflation. c. rising output accompanied by increasing inflation. d. rising output accompanied by decreasing inflation. 48. The original goal of the Fed's founders was to prevent the a. supply of money from increasing too rapidly. b. supply of money from decreasing during downturns. c. possibility of hyperinflation. d. possibility of interest rates falling too rapidly. ____ 49. If the Fed raises the discount rate, what will be the effect on the money supply? a. It will decrease the money supply. b. It will increase the money supply. c. No change in the money supply. d. Not enough data to give an answer. ____ 50. Currently, in the United States, you can expect the discount rate to be a. used often to change the money supply. b. raised in periods of recession. c. fixed at the bank rate. d. adjusted to follow market rates of interest.

Explanation / Answer

(22) True

Lower reserve ratio will raise money supply

(23) False

Fed frequently uses Open Market Operations as monetary policy tools.

(24) True

As money supply rises, total expenditure (TE) rises too and TE curve shifts upward.

(25) False

As tax reduces, disposable income rises and consumption rises, so consumption curve shifts upward.

(39) (b)

(48) (b)

(49) (a)

Higher discount rate will lower the money supply.

(50) (c)

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