9. In order to reduce the money supply, a central bank can: A. raise the reserve requirement. B. buy bonds in open market operations. C. lower the discount rate. D. engage in quantitative easing.
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- Bank runs are often described as self-fulfilling prophecies. Why is this phrase appropriate to bank runs?If the Central Bank decides to decrease the money supply, it will Select one: a. purchase government bonds. b. sell government bonds. C. purchase corporate bonds. d. reduce interest rates.1. Which of the following would NOT cause a rise in the money supply (assume ceteris paribus)? A. An increase in government spending financed by borrowing from the central bank. B. The centFal bank imposes a reserve requirement (reserve ratio) on banks above their current ratio. C. A rise in demand for money and the central bank does not change interest rates. D. The central bank agreeing to swap toxic assets for cash (quantitative easing). E. All of the above.
- 1 .Money demand decreases when the Federal Reserve Bank increases the Federal Reserve discount rate. Select one: a. TRUE b. FALSE 2 .The money supply increases when the Federal Reserve Bank decreases the Federal Reserve discount rate. Select one: a. TRUE b. FALSEWhat is the likely effect of a central bank engaging in open market operations to sell government securities? A. It will increase the money supply in the economy. B. It will decrease the money supply in the economy. C. It will have no effect on the money supply but will increase interest rates. D. It will increase the money supply and decrease interest rates.If the Bank of Canada were to conduct an open market purchase, it would Select one: a. decrease the money supply and decrease output. b. increase the money supply and decrease output. c. increase the money supply and increase output. d. decrease the money supply and increase output.
- When the Fed wants to expand the money supply, it a. sells government securities. b. buys government securities. c. buys common stock. d. sells common stock.Federal funds A. provide banks with an immediate infusion of reserves. B. are short-term funds transferred between financial institutions, usually for a period of one day. C. actually have nothing to do with the federal government. D. are all of the above..A central bank can increase the money supply by: Select one: a. changing the quantities of required and excess reserves by altering the legal reserve ratio. b. changing the discount rate so as to encourage or discourage commercial banks in borrowing from the central banks. c. changing the bank reserves through the sale or purchase of government securities. d. reducing the discount rate to reduce the cost of borrowing from the central bank.
- A purchase of U.S. government securities by the Fed causes A. a multiple contraction of the money supply because deposits fall by more than the amount of the securities purchased. B. a contraction of the money supply equal to the amount of the securities because all other transactions occur within the banking system. C. an expansion of the money supply equal to the amount of the securities because all other transactions occur within the banking system. D. a multiple expansion of the money supply because the required reserve ratio is less than oneThe income generated from federal funds sold is counted on a bank's income statement as a. gross interest income. b. gross interest expense. c. noninterest income. d. noninterest expense. 2. When a central bank wants to pursue a contractionary monetary policy, it should a. increase the required reserve ratio. b. pump excess reserves into the banking system. c. decrease the required reserve ratio. d. decrease the currency ratio. When the link between M1, M2, and inflation broke down in the 1980s, many economists argued that the best policy approach was to have an explicit inflation target. The biggest problem with an explicit inflation target is a. that it requires perfect foresight on the part of the Federal Reserve because of the lagged impact of monetary policy instruments. b. determining which measure of inflation to use. c. that it puts too much emphasis on stable…When a commercial bank borrows from the Fed, a. it must be because the bank is not meeting its reserve requirements. b. the money supply falls. c. the bank can make more loans. d. the reserves of the bank fall.
