Question

10) Correctly match the scenario with the effect on the money supply

Fed conducts an open market sale.

      [ Choose ]            Money supply increases            Money supply increaess.            Money supply increases.            Money supply decreases.      

Fed decreases the reserve requirement

11) Assume the reserve ratio is 20%. When banks receive $3000 in reserves, how much money will they create?

      [ Choose ]            Money supply increases            Money supply increaess.            Money supply increases.            Money supply decreases.      

Fed increases the interest paid on reserves.

      [ Choose ]            Money supply increases            Money supply increaess.            Money supply increases.            Money supply decreases.      

Fed decreases the discount rate.

      [ Choose ]            Money supply increases            Money supply increaess.            Money supply increases.            Money supply decreases.      

Answer 1

Money supply will increase when there is an increase in the reserves in the banking system. This happens when the discount rate and the reserve requirement are decreased as well as when the open market purchase of government securities are done.

Fed conducts an open market sale. Money supply decreases.   

Fed decreases the reserve requirement. Money supply increases

11) Assume the reserve ratio is 20%. When banks receive $3000 in reserves total money created will be 3000/20% or $15000.

Fed increases the interest paid on reserves. Money supply decreases.   

Fed decreases the discount rate. Money supply increases