The Fed and Monetary Policy

It is the formula for the money multiplier.

• 1/Discount Rate

• 1/OMO

• 1/Required Reserve Ratio

• 1/MPS

If the Fed wants to prevent or end a recession, which of the following policies would be appropriate?

• raise the discount rate

• raise the reserve requirement

• buy bonds

• sell bonds

If the Fed needs to follow contractionary monetary policy, what will happen to interest rates?

• they will increase

• they will decrease

• they will not change

If the RRR is 10%, the money multiplier will be

• 5

• 10

• 20

• 25

If the RRR is 25%, the money multiplier will be

• 4

• 5

• 10

• 25

If the RRR is 5%, the money multiplier will be

• 4

• 5

• 20

• 25

It is M1 + small time deposits

• M1

• M2

• M3

If the RRR is 1%, the money multiplier will

• 50

• 100

• 1

• 10

It is the interest rate that the Fed charges member banks to borrow money for short term loans.

• discount rate

• Federal Funds rate

• prime rate

It is the interest rate that banks charge each other for short term loans

• discount rate

• prime rate

• Federal Funds Rate