Money Market Part 2

Which of the following monetary policy tools is considered the most important and most frequently used by the Federal Reserve?

• Reserve Ratio

• Discount Rate

• Open Market Operations

• Fiscal Policy

What happens to the money supply when the Federal Reserve buys government bonds from commercial banks?

• The money supply decreases.

• The money supply increases.

• The money supply remains unchanged.

• The discount rate increases.

If the Federal Reserve decreases the discount rate, what is the likely effect on the money supply?

• The money supply decreases because banks borrow less.

• The money supply increases because banks find it cheaper to borrow.

• The money supply remains unchanged as it only affects commercial banks.

• The reserve ratio will automatically increase.

What is the immediate impact on the money supply if the Federal Reserve increases the reserve ratio?

• The money supply increases as banks have more funds to lend.

• The money supply decreases as banks have less money to loan out.

• The discount rate will decrease to compensate.

• Open market operations will be initiated.