bonds from the private sector 41. 1. From time to time, the Federal Reserve buys

Question

bonds from the private sector 41. 1. From time to time, the Federal Reserve buys goverameut through a process called A. bond recall procedures. open market purchases. will 42 The quantity theory of money implies that a 7% increase in the eventually cause a 7% increase in the A, mobey demand: money supply B money supply; price level money supply; money demand money demand; inflation rate 43. 43. The most commonly used tool in monetary policy is A. changes in the required reserve ratio open market operations. , express lending transactions. D. changes in the discount rate. 44. If the Fed buys government securities, then there is A. an increase in the supply of money a decrease in the supply of money B. an increase in the required reserve ratio. a decrense in the discount rate. 45. When a car dealer attaches price stickers to his products, he is using money as a45.C A. store of value. B. unit of transfer. unit of account. D. medium of exchange switchboards are an example of C. cyclical unemployment. D. frictional unenployment 46. Telephone operators who have lost their jobs as a result of computerized 46. A ADstructural unemployment. B. voluntary unemployment. 47. The multiple by which total deposits can increase for every dollar increase is the money multiplier A. liabilities B. loans C. MDreseves in 47. EC202 Midterm 2 Page 8 of 12

Explanation / Answer

42. According to quantity theory of money: MV = PY

There is direct relationship between M i.e. Money supply and P i.e. price level.

So, answer is b) Money supply; price level

44. a) an increase in the supply of money.

When Fed buys government securities then it injects additional money into the system which increases supply of money.

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