1) Which of the following is true? a) To tackle inflation, the Fed sells treasur
ID: 1156960 • Letter: 1
Question
1) 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 supply of Treasury bills.
d) None of the above.
e) a and c.
2) 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 demand of treasury bills.
b) The price of treasury bills is likely to increase in the time of inflation because the Fed
increases the demand of treasury bills.
c) The price of treasury bills is likely to decrease in the time of inflation as a result of an increase
in the supply of treasury bills.
d) a and b.
e) a and c.
3) Regulating the banking system is necessary
a) Because the banking system determines the money supply and money supply affects private
investment.
b) To make sure that fiscal policy is not influenced mainly by profit minded banks.
c) b and a.
d) None of the above
Explanation / Answer
a) "E"
To tackle inflation the Fed sells the treasury bills which increase the supply of treasury bills and reduce the money supply in the market.
b) "E"
When the demand for the Treasury bill rises the price of the treasury bill increases and the FFR decreases with it because the banks have excess funds in the reserve and the price of the treasury bill falls because the FEd increases the supply of bills at the time of inflation.
c) "A"
Regulating banks are important because it can affect the private investment in the market.
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