QUESTION IU Which of the following statements is true O The

QUESTION IU Which of the following statements is true? O The Federal Reserve Bank in Washington D.C. supplies money to the economy. O The Board of Covernors is composed of 12 members who are appointed by the President and Congress O M2 Is a measure of the money supply that Includes M1 plus more liquid assets. O The Federal Reserve Increases the money supply when they buy bonds. QUESTION 11 When the government runs a budget deficit: private investment increases due to higher interest rates. O interest rates are lower than otherwise. O the market for loanable funds is unaffected. O private investment declines due to higher interest rates QUESTION 12 Banks are able to create money only when 0 Interest rates are above 2% O The Fed sells US government bonds The reserve ratio is 100% only a fraction of deposits are held in reserve ave AllA

Solution

12) Banks create money only when banks keep some fraction of deposit as reserves and this is known as money creation. Money multiplier=1/r. Ans is D

11)when govt runs deficit then it crowds out private investment and private investment decreases as interest rate increases. Ans is D

10) When federal buys the bonds then in return they give money whoch adds more liquidity in the economy and thus money supply increases. Ans is D