Question

1. When the Fed increases the reserve requirement, banks have more money available for lending.

   a. True

   b. False

2. The economy has been very strong for several years, and business is booming. However, prices have begun to increase, and there is fear that this increase may continue for an extended period of time. Which of the following actions could the Fed take to counteract the increasing prices?

   		a. Raise the discount rate.
   		b. Lower the reserve requirement.
   		c. Buy government bonds.
   		d. Increase the overall supply of money.
   		e. Decrease overall interest rates.

3. The economy in the United States has been lagging and is in danger of falling into a recession or even a depression. Based on historical actions, which of the following is the Fed most likely to do as a primary means to control the economy?

   		a. Lower the reserve requirement.
   		b. Raise the discount rate.
   		c. Buy government securities.
   		d. Lower the prime rate.
   		e. Sell government securities

4. The federal funds rate is the interest rate at which the Federal Reserve lends money to commercial banks for a three-day period in order for the bank to meet its reserve requirements.

   a. True

   b. False

Answer 1

1. False because.When the banks increase the reserve requirements banks have to deposit extra money to fed and will have less amount for lending.

2. Option a . Raise the discount rates. Higher the discount rates lower is the money supply Other options decrease money supply to the banks.

3. Option c But government securities because through this fed can immediately inject liquidity into the country which helps in overcoming from recession.

4. False. These are provided as loans fro overnight basis and not for 3 days.

Please Discuss in case of Doubt

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