held at th monetary poliey, the Fed increases the interest rate on commercial ba

Question

held at th monetary poliey, the Fed increases the interest rate on commercial bank deposits held at the Fed. Ceteris paribas, it follows that the banks will want to hold the Fecd 6. Suppose, as an instrument of money supply would A. more; increase; upward reserves at the Fed; and thus the pressure on interest rates B. fewer, increase; upward fewer, decrease; downward D. more; decrease; upward 7. Ceteris paribus, when the Fed conducts an "open-market sale," . it sells Treasury securities, which decreases the money supply. t sells Treasury securities, which increases the money supply C. it purchas B it purchases loans from commercial banks, which decreases the money supply. ses loans from commercial banks, which increases the money supply. 8. Tothe money supply and interest rates, the Fed could increase; decrease; sell government securities to commercial banks. increase; increase; increase the discount rate. decrease; increase; increase the required reserve ratico. decrease; decrease; decrease the required reserve ratio. 9. If the Fed is increasing the required reserve ratio, then one would expect,ceteris paribus, that this activity would: (1) put pressure on the money supply; and (2) in the short run putpressure on interest rates. A. upward; upward C. upward; downward Odownward: upward 10. If the Fed is decreasing the required reserve ratio, then one would expect, ceteris paribus, that this activity would: (i)put pressure on the money supply, and (2) in the short run put A. upward; upward pressure on interest rates downward wnward; upward D, downward; downward 11. If the Fed is using the discount rate as an instrument of monetary policy, and if the rate is lowered, then commercial banks would be likely to borrowand bank reserves initially as a result of this policy. A. less from the Fed, increase. Ms less from the Fed; decrease. more from the Fed; decrease. from the Fed; increase. C

Explanation / Answer

First question is answered below

6. Correct option: (d)

Reason: An increase in interest rate on deposits will increase bank deposits at bank (as interest income will increase). This will leave banks will lower money left to loan out, thereby reducing money supply.

As money supply falls, interest rate increases due to their inverse relationship.

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