An increase in the discount rate of the Federal Reserve Moti

An increase in the discount rate of the Federal Reserve: Motivates banks to be more conservative in lending. Encourage more aggressive lending by banks. Tends to lower the interest rates in the economy. Requires merchants to offer larger discounts. Which of the following statements is correct The only authority that can actually increase the money supply in the US economy is the US Treasury. In the absence of any discretionary policy by the Fed, there can be no change in money supply. The most flexible and frequently used instrument of monetary policy is Open market operation All of the above are correct statements Suppose the economy is in a deep recession. Which of the following would be appropriate for stimulating the nomy out of the recession Increasing the reserve requirement ratio to assure people of the safety of the banking system. Reducing the supply of money to prevent inflationary pressure in the economy. Increasing the discount rate to discourage banks from extending high risk loans. Purchasing government securities to increase the money supply and therefore lower the interest rates. Which of the following is an expansionary monetary policy Reducing the Federal Reserve discount rate Selling government bonds by the fed. Increasing the reserve requirement ratio Increasing government expenditures.

Solution

1) Option 4. Requires merchants to offer larger discount rates

2) Option 4. All statements are correct

3) Option 4. Purchasing government securities to increase money supply and therefore lower interest rates

4) Option A. Reducing federal reserve discount rate . As B,C are contractionary monetary policies and D is expansionary fiscal policy