Question

1) The velocity of circulation of money is the ratio of the real gross domestic product to the money supply.

True

False

2) When the FOMC sets a monetary policy, it first identifies its intermediate target and then works accordingly to achieve its ultimate goal.

True

False

3) The Fed can enhance liquidity in the U.S. economy by increasing the federal funds rate.

True

False

4) Prior to 1980, thrift institutions in the United States were allowed to offer checking accounts.

True

False

Answer 1

Answer 1- True
Explanation- The velocity of money is an estimation of the rate at which money is exchanged in an economy. It is the occasions that money moves starting with one element then onto the next. It additionally alludes to how much a unit of currency is utilized in a given timeframe. Basically, it's the rate at which consumers and businesses in an economy altogether go through money. The velocity of money is normally estimated as a ratio of gross domestic product (GDP) to a nation's M1 or M2 money supply.

Answer 2- True
Explanation- The first target of monetary policy is control the inflation rate. FOMC implement the open market operations to control liquidity flow in the economy. The objectives of monetary policy are to advance maximum employment, stable prices and moderate long-term interest rates. By actualizing successful monetary policy, the Fed can keep up stable prices, consequently supporting conditions for long-term economic growth and maximum employment.

Answer 3- False
Explanation- The Fed utilizes the government funds rate to control inflation and energize sound economic growth.
A lower funds rate allows banks to borrow money at lower financing costs and give the savings to consumers in the structure of lower-priced mortgages, auto loans and different credit extensions. These diminished rates help increment consumer spending.
A higher government funds rate makes it increasingly costly for banks to borrow money. At the point when rates are high, banks lend less money and charge higher financing costs. At the point when credits are increasingly costly and hard to get, businesses are less inclined to borrow. This decrease the liquidity of money in the economy.

Answer 4- False

Explanation- Thrifts or saving and loans were not permitted to offer checking accounts until the late 1970s. This decreased the allure of savings and loans to consumers, since it expected consumers to hold accounts over various institutions so as to approach both checking privileges and competitive savings rates.

During the 1980s the circumstance changed. The US Congress granted all thrifts in 1980, including savings and loans associations, the ability to make consumers and business loans and to give exchange accounts. The Depository Institutions Deregulation and Monetary Control Act (DIDMCA) of 1980 was intended to help the banking industry to battle disintermediation of funds to higher-yielding non-store items, for example, money market, mutual funds.