Question

1,if the Fed wants interest rates to fall they will buy U.S. government buy T/F

2,consider the cash people carry in their wallets. this cash is part of the M1 money supply but not part of the M2 money supply T/F

3.consider the T-ccount for Bank 1 when customer deposit funds into their checking accounts, there is an increase in Bank1's assets and a decrease in its liabilities. T/F

4.if banks decide to hold a larger % of deposit on reserve then the money multiplier will increase T/F

5.All else the same, it banks choose to hold fewer excess reserves the money supply will fall T/F

6.when the Fed sells U.S government bonds, it has conducted open market sales and the money supply can be expected to rise T/F

7.If the Fed wants to increase the money supply they will buy U.S government bonds. T/F

8.All interest rate in the economy are set by Federal reserve T/F

Answer 1

1. if the Fed wants interest rates to fall they will buy U.S. government buy it is true because  to increse the money supply federal reserve can buy government bonds and this will lead to interest rate fall down or discounted rate to fall down to increse money supply.

2. consider the cash people carry in their wallets. this cash is part of the M1 money supply but not part of the M2 money supply, this is false statement because M1 is most liquid money.

for example - Cash in wallet. M2 includes M1 and other less liquid form of money like deposit certificate , mutual fund balances etc .Since M2 includes M1 so the above statement is false.

Also M1 includes coin and currencies But M2 includes M1 + Saving deposits + Money Market funds + certificate of deposits + other time deposits.

3. False-  consider the T-account for Bank 1 when customer deposit funds into their checking accounts, there is an increase in Bank1's assets and a decrease in its liabilities because deposits is an increase in checkable deposits and on the other hand reserve and loan, therefore both assets and liabilities increase so the given statement is false.

4.False. if banks decide to hold a larger % of deposit on reserve then the money multiplier will increase because More reserve the money multiplier is lower, Multiplier = 1/ reserve Ratio

As the reserve increase the money multiplier decreases

5. False. If the bank choose to hold fewer excess reserve then this means it has chosen to lend more, An increase in the lending implies more loans would be created leading more deposits being created leading to an increase in money supply, thus above statement is false

7.True, When the fed wants to increase the money supply in the market, it will buy government bonds in the open market operation.