Question

15. Under the assumptions of this chapter, the value of the money multiplier (m) is:

a. Always a positive fraction (0 < m < 1)

b. Always greater than one (m > 1)

c. Not necessarily positive

d. Always less than the reserve-deposit ratio

16. The Federal Reserve, which is the central bank of the United States, can increase the U.S. monetary base (B) by taking the following action:

a. Increase the currency held by the public (C) by printing currency and using it to buy Treasury bonds (or similar securities) from the public [open market operations]

b. Increase the currency held by the public (C) by selling some of its stock of Treasury bonds (or similar securities) to the public [open market operations]

c. Increase the reserves held by banks by reducing the interest the Fed pays to banks on the reserves kept by banks at the Fed

d. Increase the reserves held by banks by raising the discount rate charged by the Fed on loans made to banks from the Fed s discount window

Answer 1

a) The money multiplier will always greater than zero and less than 1. The answer is "A". it is always a positive fraction.

b) To increase the monetary base the Fed need to increase the money supply and for that they have to buy bonds, that will increase the currency in hand and hence the monetary base.

Increase the currency held by the public (C) by printing currency and using it to buy Treasury bonds (or similar securities) from the public. the answer is "A".