Question

1. When the Federal Reserve decreases the required reserve ratio,

A.The money supply will increase.

B.The money supply will decrease.

C.There is no effect on the money supply.

D.Not enough information is given.

2. The United States is divided into ___ Federal Reserve Districts. The Federal Reserve Bank's Board of Governors consists of ___ members appointed by the president of the U.S. to 14-year, non-renewable terms. One of the board members is appointed to a ___ year, renewable term as the chairman.

3. To increase the money supply, the FOMC directs the trading desk, located at the Federal Reserve Bank of New York, to

A.buy U.S. dollars in the foreign exchange market.

B.print U.S. Treasury securities and distribute them to banks.

C.sell U.S. Treasury securities to the public.

D.buy U.S. Treasury securities from the public.

4. By raising the discount rate, the Fed leads banks to make _________ loans to households and firms, which will _________ checking account deposits and the money supply.

A.fewer; decrease

B.more; decrease

C.more; increase

D.fewer; increase

5. Based on the quantity theory of? money, if velocity is? constant, inflation is likely to occur? when:

A.The money supply grows at a faster rate than real GDP.

B.The money supply and inflation are unrelated.

C.The money supply grows at the same rate as real GDP.

D.The money supply grows at a slower rate than real GDP.

Using its three monetary tools, explain how the Fed can increase the money supply. Make sure to explain how each monetary tool is used to increase the money supply. What is the Fed's preferred tool of monetary policy??

Answer 1

1.
A.The money supply will increase.
If the required reserve ratio is decreased banks are able to lend out more hence increasing the money supply.
2.
The United States is divided into 12 Federal Reserve Districts. The Federal Reserve Bank's Board of Governors consists of 7 members appointed by the president of the U.S. to 14-year, non-renewable terms. One of the board members is appointed to a 4 year, renewable term as the chairman.
3.
D.buy U.S. Treasury securities from the public.
To increase money supply the Federal reserve buys securities and gives money in exchange.
4.
A.fewer; decrease
By raising the discount rate, the Fed leads banks to make fewer loans to households and firms, which will decrease checking account deposits and the money supply.
5.
A. the money supply grows at a faster rate than real GDP
Based on the quantity theory of money, if velocity is constant, inflation is likely to occur when the money supply grows at a faster rate than as real GDP