Question

QUESTION 26

1. Scenario C:

   The economy is experiencing 12% inflation per year.

   Question:

   In which direction would you change each monetary policy tool in order to help the economy? Would you increase or decrease the Required Reserve Ratio?

   	a.	Increase
   	b.	Decrease

  

QUESTION 27

1. Scenario C:

   The economy is experiencing 12% inflation per year.

   Question:

   In which direction would you change each monetary policy tool in order to help the economy? Would you increase or decrease the Discount Rate?

   	a.	Increase
   	b.	Decrease

QUESTION 28

1. Scenario C:

   The economy is experiencing 12% inflation per year.

   Question:

   In which direction would you change each monetary policy tool in order to help the economy? For open market operations, would you buy bonds or sell bonds?

   	a.	Buy Bonds
   	b.	Sell Bonds

  

QUESTION 29

1. Scenario C:

   The economy is experiencing 12% inflation per year.

   Question:

   What is the desired effect of each proposed policy in terms of changing Aggregate Demand (AD)?

   	a.	Increase AD
   	b.	Decrease AD
   	c.	Leave AD unchanged

  

QUESTION 30

1. Scenario C:

   The economy is experiencing 12% inflation per year.

   Question:

   Are the proposed policies contractionary or expansionary?

   	a.	Contractionary
   	b.	Expansionary

Answer 1

26 - Increase the required reserve ratio to decrease the loan making ability of the banks which will decrease the money supply

27 - Increase the discount rate which will it costlier for the banks to borrow from one another so this will decrease the money supply

28 - Sell bonds through open market operations to decrease the money supply in the market

29 - Decrease AD to reduce the consumption, investment and shift the AD curve to the left in order to reduce the price level

30 - Contractionary policy aims to reduce inflation in the economy.