QUESTION IU Which of the following statements is true? O The Federal Reserve Ban

Question

QUESTION IU Which of the following statements is true? O The Federal Reserve Bank in Washington D.C. supplies money to the economy. O The Board of Covernors is composed of 12 members who are appointed by the President and Congress O M2 Is a measure of the money supply that Includes M1 plus more liquid assets. O The Federal Reserve Increases the money supply when they buy bonds. QUESTION 11 When the government runs a budget deficit: private investment increases due to higher interest rates. O interest rates are lower than otherwise. O the market for loanable funds is unaffected. O private investment declines due to higher interest rates QUESTION 12 Banks are able to create money only when 0 Interest rates are above 2% O The Fed sells US government bonds The reserve ratio is 100% only a fraction of deposits are held in reserve ave AllA

Explanation / Answer

12) Banks create money only when banks keep some fraction of deposit as reserves and this is known as money creation. Money multiplier=1/r. Ans is D

11)when govt runs deficit then it crowds out private investment and private investment decreases as interest rate increases. Ans is D

10) When federal buys the bonds then in return they give money whoch adds more liquidity in the economy and thus money supply increases. Ans is D

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