Question

1. Assuming that banks lend all of their access reserves and people deposit all of their money, what will the Fed have to do in order to increase the supply of money by $120 billion if the Required Reserves Ratio is .20?

a. It needs to buy $20 billion dollar worth of bonds from banks

b. It needs to buy $24 billion dollar worth of bonds from banks

c. It needs to sell $20 billion dollar worth of bonds from banks

d. It needs to sell $24 billion dollar worth of bonds from banks

e. It needs to sell $40 billion dollar worth of bonds from banks

2. Which of these is the Fed likely to do during a recession?

a. Sell government bonds through an Open Market Operation

b. Raise the Discount Rate

c. Raise the Required Reserve Ratio

d. Lower income tax

e. Target a lower Federal Funds Rate

3. If real GDP is $40 billion, the price level 30, and the velocity of money is 24, what does the supply of money equal?

a. $40 billion

b. $50 billion

c. $60 billion

d. $75 billion

e. $80 billion

4. Which of the following is the role of the Federal Reserve System?

a. Set the Required Reserve Ratio for Bank of America

b. Manage the account for South Carolina and other state governments

c. Make loans to local businesses

d. Print new money

e. All of these are roles of the Fed

5. Ted invests in an institution that does not make loans but is regulated by the Security and Exchange Commission and allows him to invest in stocks either directly or through a mutual fund. What kind of institution is this?

a. Hedge Funds

b. Cryptocurrency

c. Commercial Bank.

d. Credit Union

e. Investment Bank

Answer 1

1 - Option B

It needs to buy $ 24 billion worth of bonds from banks

Selling the bonds will reduce supply and not expand it

Reserve ratio = 0.20

Multiplier = 1/0.20

= 5

Purchase of bonds = 120/5

= $ 24 billion

2 - Option E.

Target a lower funds rate

It cannot change tax rate as it is fiscal policy. Other options are contractionary in nature

3 - Option B

$ 50 billion

Money supply = (40*30)/24

= 1200/24

= 50

4 - Option E

All of these are roles of fed

5 - Option E

Investment banks