Question

In: Economics

(1)If the Fed wishes to increase the amount of deposits that banks hold, it can A ...

(1)If the Fed wishes to increase the amount of deposits that banks hold, it can

A   force banks by decree to do so.
B   buy government bonds in an open market operation.
C   sell domestic deposits to foreign investors.
D   sell government bonds in an open market operation.

(2)According to the quantity equation of money, in the long run, an increase in the growth of the money supply will

A   increase inflation by the larger amount if velocity decreases.
B   have no effect on inflation if velocity is constant.
C   increase inflation by the same amount if velocity is constant.
D   increase inflation by the smaller amount if velocity increases.

(3)Banks are financial intermediaries because they

A   are part of the money supply process.
B   earn a profit.
C   charge interest on a loan.
D   channel funds from depositors to borrowers.

(4)In the quantity equation of money, velocity measures

A   currency as a percentage of GDP.
B   how frequently money is used.
C   real GDP.
D   nominal GDP.

Expert Solution

Hi,

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Question:

1). Answer:

B. buy government bonds in an open market operation.

If the Fed wishes to increase the amount of deposits that banks hold, it can buy government bonds in an open market operation. When the central bank buy securities that increase the deposits that banks.

2). Answer:

C. increase inflation by the same amount if velocity is constant.

Quantity theory of money equation-

MV = PY

Where,

M = Money supply

V= Velocity of money

P = Price

Q = Quantity of goods and services.

In the long run an increase in the growth of the money supply will ncrease inflation by the same amount if velocity is constant.

3). Answer:

D. channel funds from depositors to borrowers.

Banks as Financial Intermediaries. Banks act as financial intermediaries because they stand between savers and borrowers. Savers place deposits with banks, and then receive interest payments and withdraw money.

4). Answer:

B. how frequently money is used.

It is the number of times one dollar is spent to buy goods and services per unit of time.

Thanks

Rahul Sunny answered 1 year ago

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