22. When the Fed purchases securities in an open market operation, the Fed will:

Question

22. When the Fed purchases securities in an open market operation, the Fed will: a. b. c. d. increase money supply decrease money supply have no effect on money supply none of the above 23. Raising the interest rate tends to: a. b. c. d. expand money supply and lower interest rate expand money supply and raise interest rate decrease money supply and lower interest rate decrease money supply and raise interest rate 24. Which of the following is correct sequence? a. M down, i down, I down, GDP down b. M down, i down, I up, GDP up c. M up, i down, I down, GDP down d. M up, i down, I up, GDP up where M = Money Supply, i = interest rate; investment 25. The three basic instruments of monetary policy are: a. reserve ratio, discount rate, and open market operation b. discount rate, reserve ratio, and Fort Knox's gold c. printing paper money, minting coins, and accumulating gold d. tax, loan, and spending

Explanation / Answer

22.

When the Fed purchases securities in an open market operation, the Fed will:

a. increase money supply.

This is because when the Fed purchases securities from an open market, that means it purchases from the public.

23.

Raising the interest rate tends to:

d. decrease money supply and raise the interest rate.

This is because when interest rate raises, money supply tends to fall as people want to hold more. Now, as there is a decrease in money supply, there will be a further rise in interest rate.

24.

The correct sequence is:

d. M up, i down, I up, GDP up.

This is because when money supply increases the rate of interest rate falls. As a result investment rises.

25.

The three basic instruments of monetary policy are:

a. reserve ratio, discount rate, and open market operation.

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