Monetary Policy: Reserve Requirement & Interest on Reserves

If the Federal Reserve raises interest rates to combat rapid inflation, what might be a negative outcome?

• international trade would stop
• taxes will rise 
• The government would put a freeze on prices
• Unemployment rates would rise

The Federal Reserve wants to reduce the nation's money supply. This could be accomplished by doing all of the following EXCEPT

• decreasing the discount rate.

• increasing the reserve requirement.

• selling securities on the open market.

• increasing interest on reserves

If the Federal reserveis attempting to encourage growth and stimulate the economy, which actions would each take?

• increase the Required reserve

• decrease the required reserve

• increase interest on reserves

• decreases interest on reserves

Which of the following will lead to a decrease in the nation's money supply?

• an increase in reserve requirements

• decrease in reserve requirements

If a country's economy is operating below the full employment level of output at a very low inflation rate, the central bank of the country is most likely to

• lower the discount rate and buy bonds on the open market to generate an increase in output

• lower the required reserve ratio and sell bonds on the open market to generate an increase in output

• raise the discount rate and lower the required reserve ratio to generate an increase in output

To counteract a recession, the Federal Reserve should

• raise the reserve requirement and increase interest on reserves

• lower the reserve requirement and decrease interest on reserves

Choose all that apply

In order to increase the money supply and speed up GDP, the Federal reserve must do which of the following?

• Lower interest on reserves

• Buy bonds

• Lower the reserve requirement ratio

Choose all that apply.

In order to promote economic growth, and full employment, which of the following MONETARY POLICY tools are used?

• Decreased taxes

• Decrease interest rates on loans

• Increased government spending

• Decreasing the required reserve ratio

• selling bonds

Choose all that apply.

In order to promote price stability and slow down economic growth, which of the following MONETARY POLICY tools are used?

• Decreased taxes

• Increase interest rates on loans

• Increased taxes

• Increase the required reserve ratio

• sell bonds

The fraction of bank deposits that a bank holds as reserves.

• balance sheet effect

• reserve requirement

• discount rate

• monetary policy