1) Expansionary monetary policy a) Decreases private investment. b) Increases ag
ID: 1153949 • Letter: 1
Question
1) Expansionary monetary policy
a) Decreases private investment.
b) Increases aggregate demand.
c) a and b.
d) None is correct.
2) Which of the following is true?
a) To tackle inflation, the Fed sells treasury bills, thereby decreases the money supply.
b) To tackle inflation the Fed purchases treasury bills, thereby decreases the money supply.
c) To tackle inflation the Fed sells treasury bills, thereby increases the Federal Funds Rate.
d) None of the above.
e) a and c.
2.1) Which of the following is true?
a) FDIC is an agent of the federal government.
b) The federal government cannot limit the type of assets in which banks can invest in.
c) Deposit insurance limits the money supply.
d) a and b.
e) all of the above.
f) None of the above.
3) Contractionary monetary policy
a) Decreases private investment.
b) Increases aggregate demand.
c) a and b.
d) None is correct.
4) Bank regulations
a) Are not necessary because the financial sector works more efficiently without government supervision.
b) Are designed partly to ensure the safety of depositors.
c) Are designed partly to minimize run on banks.
d) Are designed mainly to control the money supply.
e) b and c.
f) b,c,d.
Explanation / Answer
1. b). Increases the aggregate demand.
The expansionary monetary policy increases the money supply in the economy and adds more to the disposable income of the country so the increase in the disposable income increases the consumption spending and raises the aggregate demand in the economy.
The expansionary monetary policy promotes the private investment, the decrease in the interest rate encourages the the people to invest more.
2. e) a, c.
To tackle the inflation the Fed must decrease the money supply in the economy, so one way to decrease the money supply is to sell the treasury bills and and the other one is to increase the federal funds rate. The federal funds rate is used for the overnight tarnsactions between the depository indtitutions.
2.1) d) a, and b.
FDIC is considered as an independent agency of the federal government and the depository insurance increase the money supply instead of limiting it.
3. a) decreases the private investment.
When there is a contractionary monetary policy it raises the interest rate in the economy so at a higher interest rate the cost of borrowing money is high so there should be a decline in the priavte investment.
4. e) b and c.
The banking regualtions are mainly associated with increasing the market transperancy and other objective of this regulation is to ensure safety of depositors and minimize the run.
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