How the Fed Worked Before the Great Recession Practice Questions | Marginal Revolution University

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How the Fed Worked Before the Great Recession Practice Questions

1. Which of the following is not a reason that banks keep reserves? *

a. To settle transactions with other banks.

b. To meet the Fed’s minimum reserve requirement.

c. To meet customers’ withdrawals.

d. To keep the interest rate from becoming too low.

2. What is the intended effect of expansionary open market operations (OMOs)? *

a. Increase in the federal funds rate.

b. Banks keep reserves above the minimum requirement.

c. Increase in aggregate demand.

d. Greater savings in the economy.

3. Which of the following is not a result of expansionary OMOs? *

a. Increase in the money supply.

b. Less investment spending.

c. Decrease in the federal funds rate.

d. Banks make more loans.

4. Contractionary OMOs are the reverse of expansionary OMOs and are intended to have the opposite effect. Which of the following should the Fed do to conduct contractionary OMOs? *

a. Sell treasury bills to banks.

b. Buy treasury bills from banks.

c. Increase the money supply.

d. Lower the minimum reserve requirement.

5. What is the intended effect of raising the federal funds rate? *

a. Banks hold more excess reserves.

b. Banks hold fewer excess reserves.

c. Increase in aggregate demand.

d. Decrease in aggregate demand.

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Principles of Economics Macroeconomics

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Principles of Economics: Macroeconomics

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