Contractionary monetary policy a) Increases investment and aggregate demand. b)
ID: 1156780 • Letter: C
Question
Contractionary monetary policy
a) Increases investment and aggregate demand.
b) Aims to decrease aggregate supply.
c) May include a reduction in the rate of required reserves.
d) Increases the money supply
e) None.
8) Which of the following is true?
a) The negative relationship between the FFR and the price of treasury bills is a result of a change in the supply of treasury bills.
b) The price of treasury bills is likely to increase in the time of recession because the Fed increases the demand of treasury bills.
c) The price of treasury bills is likely to decrease in the time of recession as a result of a decrease in the Federal Funds Rate.
d) a and b.
e) a and c.
9) Regulating the banking system is necessary
a) Because the banking system tends to shift the aggregate supply continuously to the right.
b) Because the banking system determines the money supply and money supply affects aggregate demand.
c) To minimize run on banks.
d) b and c.
e) All of the above.
10) Open market operations in the time of recession
a) Refers to selling treasury bills in order to increase interest rate.
b) Refers to buying treasury bills in order to decrease money supply
c) Refers to buying treasury bills in order to decrease the interest rate.
d) Refers to buying treasury bills in order to increase money supply.
e) c and d.
f) b and d.
Explanation / Answer
7.
E.None
Contractionary monetary policy decreases money supply and causes aggregate demand to shift to the left.
8.
B
During recession, Fed buys the treasury bills to supply the money that increases the demand of treasury bills. It increases the price of the treasury bills as interest rate decreases.
9.
D
The regulation of the banking system, helps to regulate the money supply and maintain the confidence of the people in the banking system.
10.
E
It happens to ease the concerns and improve the economic conditions during the recession.
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