1. If the Federal Open Market Committee (FOMC) decides to expandthe money supply

Question

1. If the Federal Open Market Committee (FOMC) decides to expandthe money supply, then:
a. it will issue directions to sell U.S. government securities,thus increasing the velocity of
circulation of the money supply.
b. it will issue directions to purchase U.S. government securities,thus putting more reserves
in the hands of banks.
c. it will order new Federal Reserve notes delivered to memberbanks.
d. it will raise the discount rate to member banks.

2. Which of the following would constitute contractionary monetarypolicy by the Fed?
a. An increase in income tax rates, a cut in government spending,and an elimination of the
investment tax credit
b. Open market sales of government securities, an increase in thediscount rate, and an
increase in reserve requirements
c. An increase in tariffs on imported goods and a decrease inforeign aid
d. Open market purchases of government securities, a cut in thediscount rate, and an
increase in reserve requirements

3. Which of the following is the Fed's most common way to changethe money supply?
a. Moral suasion
b. The discount rate
c. The required reserve rate
d. Open market operations

4. Doubling the required reserve ratio would, other things beingequal,
a. double the money supply.
b. halve the money supply.
c. increase the money supply, but by less than double.
d. decrease the money supply, but by more than double.

5. A combination of Fed purchases of government securities and anincrease in reserve requirements would:
a. increase the money supply.
b. decrease the money supply.
c. leave the money supply unchanged.
d. have an indeterminate effect on the money supply.

Explanation / Answer

2.b 3.b 4.b 5.d

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