1. Explain how to the Central Bank can reduce the money supply with open market operations. Show the impact of this contractionary monetary policy on the interest rate and discuss the implications to the economy.

12.

1a.Name 2 or more tools that the Fed uses in conducting monetary policy.   b.Describe how / why the Fed might use one of these tools.

What are two examples of expansionary monetary policy? A. lowering the federal funds rate; selling bonds B. raising the federal funds rate; buying bonds C. raising the federal funds rate; selling bonds D. lowering the federal funds rate; buying bonds

23. Identify the four major methods the Fed uses to control the money supply. Give two examples of situations in which the Fed might use one of these methods and explain why that method is best for the given situation.

3. With the help of appropriate diagrams, explain the expansionary monetary policy and its consequences.

25. Suppose the Fed conducts an open market sale.  We can expect this transaction to   A) reduce the money supply, increase bond prices, and lower interest rates.   B) increase the money supply, lower bond prices, and lower interest rates.   C) increase the money supply, raise bond prices, and lower interest rates.   D) reduce the money supply, reduce bond prices, and increase interest rates.     26. If the economy experiences an inflationary gap, a contractionary monetary policy will   A) increase real GDP and increase the price level.   B) increase real GDP and decrease the price level.   C) decrease real GDP and increase the price level.   D) decrease real GDP and decrease the price level.     27. Suppose the economy experiences a recessionary gap. Expansionary monetary policy will   A) increase interest rates and increase the bond prices.   B) increase interest rates and decrease…

11. Which policy tool involves the federal reserve setting a short-term interest rate to lend directly to financial institutions? a. The fed funds rate b. The discount rate c. The interest rate paid on excess reserves d. The rate of required reserves 12. Suppose the federal reserve announces a policy of purchasing short-term bonds from the financial system. This policy is an example of a. Expansionary monetary policy through open market operations designed to decrease the federal funds rate b. Contractionary monetary policy through open market operations designed to increase the federal funds rate

If the central bank buys bonds from the market with open market operations when the money market is in equilibrium and money demand is stable, which of the following developments will occur? a. Interest rate doesn't change b. Investments increase c. Interest rate decrease d. Interest rate increase