A Foderal Reserve sels securitis C37) e the Fied\'s most important tool becasse

Question

A Foderal Reserve sels securitis C37) e the Fied's most important tool becasse they wre used mo A Reserve ratio changes B Discount rale chanages COpen market operations oso -" te application of "suggestice,-pressure and not free to coconge banks to increase or docrease loan activity as is appropeiate for the sarsoeal economy A Reserve ratios BMargia roquirements C Credit controls D Mocal suasion 39 When there is an easy mosey policy because the Fed is accommodating by increasing the money supply, then interest rates are reduced ad hat Business Investment. . A decreases B does not change

Explanation / Answer

Ans 34 – As there is a decrease in the checking account the M1 will decrease the bank would be required to keep lesser amount as reserves hence the bank reserves will also decrease.

Ans 35 – Reserve ratio is reduced. Reducing the reserve ratio will decrease the reserve requirement for the banks and they will have more money at their disposal to lend out. As a result the investment spending increases which also increases the aggregate demand.

Ans 36 – Federal Reserve sells securities. Selling securities reduces the money supply which increases the interest rates resulting in decrease in the business investment spending and aggregate demand.

Ans 37 – Open market operations. Buying and selling of securities have the most direct impact on the money supply changes desired by the Fed.

Ans 38 – Reserves ratios. Reserves requirements are not to regulate the banks on their lending activities.

Ans 39 – Increases. Reduction in interest rates means the cost of borrowing is lower hence it increases the business investment spending as more amount can be invested by borrowings.

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