Understanding Limited and Ample Reserves in Macroeconomics

What analogy does the instructor use to explain the role of money in the economy?

• Money is like air in a balloon.

• Money is like water in a river.

• Money is like blood in the body.

• Money is like fuel in a car.

How do limited reserves affect the interest rates when new money enters the system?

• Interest rates increase significantly.

• Interest rates remain unchanged.

• Interest rates decrease quickly.

• Interest rates fluctuate randomly.

What happens to the effectiveness of traditional monetary policy when there are ample reserves?

• It causes inflation.

• It becomes less effective.

• It remains the same.

• It becomes more effective.

In the reserve market graph, what does the horizontal part of the demand curve represent?

• No reserves

• Ample reserves

• Limited reserves

• Excess reserves

What can the central bank do to increase interest rates when there are ample reserves?

• Increase the interest on reserves

• Decrease the money supply

• Lower the reserve ratio

• Buy more bonds