Please explain every option detailly of problem 6, thank you^^ 6. A) Which of th

Question

Please explain every option detailly of problem 6, thank you^^

6. A) Which of the following statements is true? The slope of the supply curve of reserves can be attributed to the fact that quantity supplied of reserves increases with the federal funds rate. If there are no changes in inflation expectations, a sale of government bonds by the Fed in the open market will cause both the federal funds rate and long-rur expected real interest rate to rise. B) C) According to the quantity theory of money, when the gap between the growth rate of money supply and the growth rate of real GDP widens, inflation decreases If there is a change in the federal funds rate from a target rate due to an increase in the demand for reserves, the Fed can maintain the target by causing an upward movement along the supply of reserves curve. D)

Explanation / Answer

Ans is A

We know that the supply curve of reserves with the fed rate is positive slope. Positive slope of reserve supply says that an increase in fed rate will increase the reserves. And the slope determines how sensitive is the reserve to change in fed rate.

Otherwise rest of the statements are false.

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