5. To increase the supply of money when the economy is weak, the Fed ________. c

ID: 1133521 • Letter: 5

Question

5. To increase the supply of money when the economy is weak, the Fed ________.

closes banks

reduces inflation

sells bonds

buys bonds

6. The federal funds rate is the short-term interest rate that ________.

banks charge their best customers when borrowing

banks earn on savings accounts with the Fed

banks charge each other when borrowing or lending to each other

the Fed charges banks when borrowing

7. When the Fed increases the money supply and consequently lowers interest rates, the value of the dollar ________.

will rise by more in the market for foreign exchange, all else equal

will fall, all else equal

is not impacted by Fed policy

will rise, all else equal

a) To increase the money supply in the market the Fed will buy bonds in the market and give them money in return. The answer is "D".

b) "C"

Federal fund rates are what the banks charge to each other for short term.

c) "B"

MOre money supply causes an outflow of currency and the value decrease, all else equal.

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