fourth ten

Lowering the reserve ratio

changes required reserves to excess reserves

If the FED buys government securities from commercial banks in the open market

commercial banks give the securities to the FED, and the FED pays for them by increasing the reserves of commercial banks at the FED

Lowering the discount rate has the effect of

making it less expensive for commercial banks to borrow from the central banks

The economy is experiencing inflation and the Federal Reserve decides to pursue a restrictive money policy. Which actions by the FED would be most consistent with this policy

selling government securities

Inflationary pressure is a growing problem for the economy. Therefore, the Federal Reserve decides to pursue a policy to reduce the inflationary pressure. Which policy changes by the FED would reinforce each other to achieve that objective

selling government securities and raising the discount rate

Changes in interest rates cause a shift in

the aggregate demand curve, but not the investment demand curve

Assuming that the Federal Reserve Banks sell $40 million in government securities to commercial banks and the reserve ratio is 20 percent, then the effect will be to reduce

the potential money supply by $200 million

What is one of the advantages of monetary policy over fiscal policy

the quickness with which it can be used

Which of the following best describes what occurs when monetary authorities sell government securities

there is a decrease in the size of commercial banks excess reserves, the money supply decreases, and the interest rates rise, thereby causing a decrease in investment spending and real GDP