Homework Sourse7 Which of the following is correct a The Fed can precisely
7) Which of the following is correct?
a) The Fed can precisely target the money supply because it can exactly determine the money multiplier.
b) The Fed can precisely target the interest rate because it can exactly determine the money multiplier.
c) The Fed cannot precisely target the money supply because it cannot exactly determine the money multiplier.
d) The Fed cannot precisely target the supply of reserves because it cannot exactly determine the money multiplier.
e) c and d.
12) The money multiplier
a) Cannot be precisely determined because private banks may choose to keep more reserves than what is mandatory by the rate of required reserves.
b) Cannot be precisely determined because private banks may choose to keep less reserves than what is mandatory by the rate of required reserves.
c) Can be precisely determined because the Fed can precisely target the interest rate.
d) None of the above.
13) Which of the following is an example of contractionary monetary policy?
a) An increase in the rate of required reserves.
b) Buying treasury bills.
c) Selling treasury bills.
d) a, c.
e) a, b.
15) Which of the following is true?
a) The money multiplier is easily calculated by the Fed.
b) Monetary policy is usually not successful because the government cannot control its expenditures.
c) Monetary policy can no longer fix the economy because the Fed cannot precisely calculate the money multiplier.
d) None of the above.
Solution
7)
Right answer is (c).
Supply of money depends on the value of multiplier. But here exact value of multiplier cannot be determined in advance. It depends on bank if they want to lend out money or not.
12)
Right answer is (A)
Value of multiplier depends on amount of money lend out by the commercial bank. But these banks may pile up the reserve instead of lending out.
13)
Right answer is (d)
Increase in reserve requirement reduces lending capacity of banks.
Selling treasury bill to public mops liquidity from market.
