C211 Competency 4

Which of the following policies can the Fed follow to increase the money supply?

Reduce the interest rate on reserves

Which of the following is NOT an example of monetary policy?

The Federal Reserve facilitates bank transactions by clearing checks.

If the demand for a product increases, then we would expect equilibrium price

and equilibrium quantity both to increase.

Equilibrium quantity must decrease when demand

decreases and supply does not change, when demand does not change and supply decreases, and when both demand and supply decrease.

When conducting an open-market sale, the Fed

sells government bonds, and in so doing decreases the money supply.

If the price of walnuts rises, many people would switch from consuming walnuts to consuming pecans. But if the price of salt rises, people would have difficulty purchasing something to use in its place. These examples illustrate the importance of

the availability of close substitutes in determining the price elasticity of demand.

The Federal Reserve

the central bank of the United States

Cross-price elasticity of demand measures how

the quantity demanded of one good changes in response to a change in the price of another good.

The price elasticity of supply measures how much

the quantity supplied responds to changes in the price of the good.

Other things the same, if reserve requirements are increased, the reserve ratio

increases, the money multiplier decreases, and the money supply decreases.

Which of the following increase when the Fed makes open market purchases?

Currency and reserves

Suppose that demand for a good increases and, at the same time, supply of the good decreases. What would happen in the market for the good?

Equilibrium price would increase, but the impact on equilibrium quantity would be ambiguous.

Which of the following is NOT a determinant of the price elasticity of demand for a good?

The steepness or flatness of the supply curve for the good

When the Fed decreases the discount rate, banks will

borrow more from the Fed and lend more to the public. The money supply increases.

The price elasticity of demand measures

buyers' responsiveness to a change in the price of a good.

If the Fed raised the reserve requirement, the demand for reserves would

increase, so the federal funds rate would rise.

The federal funds rate is the

interest rate at which banks lend reserves to each other overnight.