Which of the following is an example of a contractionary monetary policy? A)Tran

Question

Which of the following is an example of a contractionary monetary policy?
A)Transfer payments to poor families are reduced
B)The fed buys government securities in the open market
C)The discount rate raised
D)The required reserve ratio is lowered
E)Anything the fed does to shift the money supply to the right is a contractionary policy?


The velocity of money is defined as?
A)The time it takes the average worker to get to the bank with his/her paycheck
B)The time is takes banks to clear checks
C)The average number of times per year each dollar is used to purchase final goods and services
D)How quickly banks get you through the teller line


Which of the following fiscal policies would cause a decrease in aggregate demand?
A)An increase in transfer payments and increase in government spending
B)An increase in transfer payments and a decrease in taxes
C)A decrease in taxes and an increase in government spending
D)An increase in taxes and a decrease in government spending
E)None of the above

Explanation / Answer

C) Contractionary monetary policy reduces the money supply. Raising the discount rate means that banks are not able to borrow as much money, thus decreasing the money supply. C) The velocity of money is defined as the average number of times per year each dollar is used to purchase final goods and services D) Aggregate demand (AD) = Consumption (C) + Investment (I) + Government Spending (G) + Net exports (NX). An increase in taxes will decrease the disposable income available for consumer spending (C = a + b(Y-T) where a and b are constants, Y is income, and T is taxes). Decreasing government spending also contributes to a decrease in AD

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