Principles of Macroeconomics

Queson 17. Queson : Suppose a bank receives a new deposit of $500. The bank extends a new loan of $400 because it is required to hold the other $100 on reserve. What is the legal required reserve rao? Student Answer: 10 percent 15 percent 20 percent 25 percent Points Received: 2 of 2 Comments: Queson 18. Queson : The major overall purpose of the Federal Reserve System is to Student Answer: keep the discount rate ﬂexible. insure the deposits of persons holding funds with banking instuons. regulate the money supply, and, thereby, provide a monetary climate that is in the best interest of the economy. regulate the levels of excess reserves held by member banking instuons. Points Received: 2 of 2 Comments: Queson 19. Queson : If the Fed purchases government securies from the public, the Student Answer: money supply will decrease. reserves of commercial banks will decrease. required reserves rao will increase. money supply will increase Points Received: 0 of 2 Comments: Queson 20. Queson : If the Fed decreased the discount rate, Student Answer: the earnings of the Fed would increase. in incenve of commercial banks to borrow from the Fed would be reduced. the prime interest rate would automacally decline. commercial banks probably would reduce their excess reserves and be more willing to extend addional loans. Points Received: 0 of 2 Comments: Queson 21. Queson : Suppose that during a period of inﬂaon, the Fed reduced its holding of U.S. securies from $600 billion to $580 billion. This indicates that the Fed was Student Answer: seeking to reduce the money supply to decrease inﬂaon. trying to force Congress to decrease taxes. expanding the money supply and smulang employment. expanding the money supply, even though the exisng inﬂaon suggested a restricve policy would be more appropriate. Points Received: 0 of 2 Comments: Queson 22. Queson : If the Fed shiﬅs to a more restricve monetary policy in order to help control inﬂaon, the policy shiﬅ will generally Student Answer: smulate aggregate demand and real output as soon as the policy is instuted. reduce aggregate demand immediately and quickly bring the inﬂaon under control. reduce aggregate demand and help bring inﬂaon under control, but the primary eﬀects may not be felt for several months or quarters. lower real interest rates in the short run, but in the long run, the real interest rates will rise.

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