Question

30. An increase in household saving causes consumption to

A. rise and aggregate demand to increase.

B. rise and aggregate demand to decrease.

C. fall and aggregate demand to increase.

D. fall and aggregate demand to decrease.

35. Which of the following Fed actions would both decrease the money supply?

A. buy bonds and raise the reserve requirement

B. buy bonds and lower the reserve requirement

C. sell bonds and raise the reserve requirement

D. sell bonds and lower the reserve requirement

38. Sometimes during wars, government expenditures are larger than normal. To reduce the effects this spending creates on interest rates,

A. the Federal Reserve could increase the money supply by buying bonds.

B. the Federal Reserve could increase the money supply by selling bonds.

C. the Federal Reserve could decrease the money supply by buying bonds.

D. the Federal Reserve could decrease the money supply by selling bonds.

Answer 1

30.An increase in housheold saving causes consumption to

D.fall and aggregate demand to decrease.

(When there is an increase in the household saving,it simply means that people start to save more.As a result they have less disposable income in hand which in turn decreases their consumption.An increase in the household saving causes consumptiom to fall and not rise.When consumption falls it affects the aggregate demand which also decreases and does not increase.)

35.Which of the following Fed actions would both decrease the money supply?

c.sell bonds and raise the reserve requirement.

(The Fed uses various actions to control the money supply in the economy.The Fed undertakes Open Market Operations where it undertakes buying and selling of securities in the open market.When the Fed sells bonds it reduces the.money supply in the economy as people buy the bonds in exchange of money,similarly when the Fed buys bonds it increases the money supply in the market as bonds are bought in exchange of money.The Fed also controls money supply by means of Cash Reserve Ratio or Reserve Requirement which is a fraction of deposits held with the bank which it is supposed to maintain as reserves and it cannot lend in the form of loans.So when the Fed raises the reserve requirement it means that banks would have less money to give as loans and thus it decreases the money supply in the market.On the other hand when the Fed wants to increase the money supply it decreases the reserve requirement so banks have more money to lend.)

38.Sometimes during wars,government expenditures are larger than normal.To reduce the effects this spending creates on interest rates ,

A.The Federal Reserve could increase the money supply by buying bonds.

(During wars when the government expenditures increase,due to the crowding effect the interest rate increase.During such a situation as there is a decrease in money supply the Federal Reserve increases the supply of money by buying bonds,thus decreasing the interest rates.Selling of bonds by the Federal Reserve decreases the money supply which raises the rate of interest.)