2. Problems and Applications Q2 If the Fed wants to increase the money supply, it can If the Fed wants to decrease the money supply, it can If the Fed wants to increase the money supply, it can bonds in open-market operations. the reserve requirement. the interest rate it pays on reserves.

Suppose the Fed is holding $35 billion in mortgage-backed and other securities and $65 billion in U.S. Treasury securities. Reserves are $60 billion and currency is $40 billion.   Calculate the monetary base.     A. $125 billion   B. $200 billion   C. $100 billion   D. $135 billion

3. What would be the effect of increasing the banks' reserve requirements on the money supply?

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.

4) Listen If the money multiplier decreased from 20 to 4, then the Fed increased the reserve ratio from 5 percent to 8 percent. the Fed increased the fed funds rate from 5 percent to 8 percent. the Fed increased the reserve ratio from 5 percent to 25 percent. the Fed decreased the fed funds rate from 8 percent to 5 percent. Question 30 (1 point) )Listen The FOMC is able to increase the money supply when it buys US government securities. The increase will be larger, the larger is the reserve ratio. buys US government securities. The increase will be larger, the smaller is the reserve ratio. sells US government securities. The increase will be larger, the smaller is the reserve ratio. sells US government securities. The increase will be larger, the larger is the reserve ratio.

7. The four major instruments (or tools) of monetary policy are: 1) Open market operations 2) The Discount Rate 3) The reserve ratio 4) Interest on Reserves The Fed uses four major tools to control the reserves of banks and the size of the money supply. 1) The Federal Reserve can buy or sell government securities in the open market to change the lending ability of the banking system: (a) buying government securities in the open market from either banks or the public ( increases, decreases ) the excess reserves of banks; (b) selling government securities in the open market to either banks or the public ( increases, decreases ) the excess reserves of banks. 2) The Fed can raise or lower the reserve ratio: (a) raising the reserve ratio ( increases, decreases ) the excess reserves of banks and the size of the monetary (checkable-deposit) multiplier; (b) lowering the reserve ratio (increases, decreases) the excess reserves of banks and the size of the monetary multiplier. 3) The Fed can…

Which statement(s) is/are TRUE? I. Increasing the reserve requirement would decrease the money supply. II. Decreasing the discount rate would decrease the money supply. III. Buying government bonds would increase the money supply. II only III only I and III only I and II only

3 4 Open market operations are the buying and selling of government securities by the Central Bank buying and selling of Central Bank credit notes in the open market. None of the options provided means by which the Central Bank supplies the economy with base money The money demand curve shows the inverse; the interest rate direct; GDP. inverse; GDP direct; the interest rate relationship between the quantity demanded of money and

no handwritten notes!

6. Banks hold some deposits on reserve at the Fed because a. These deposits meet the reserve requirements of the Fed. b.The Fed requires every bank to hold at least $100 million on deposit at all times. c.These are membership dues for being a member bank. d. The Fed will insure those deposits, but will not insure regular bank deposits.