Unit 4 AP Macro

Suppose the Federal Reserve buys $400,000 worth of securities from the securities dealers on the open market. If the reserve requirement is 20% and the banks hold no excess reserves, what will happen to the total money supply?

• It will be unchanged.

• It will contract by $2,000,000.

• It will contract by $800,000.

• It will expand by $2,000,000.

• It will expand by $800,000.

Which of the following does the Federal Reserve use most often to combat a recession?

• Selling securities

• Buying securities

• Reducing the reserve requirement

• Increasing the discount rate

• Increasing the federal funds rate

Reserves, the money supply, and interest rates are most likely to change in which of the following ways when the Federal Reserve sells bonds?

Reserves/Money Supply/Interest rates

• Increase/Increase/Increase

• Increase/Increase/Decrease

• Decrease/Increase/Decrease

• Decrease/Decrease/Increase

• Decrease/Decrease/Decrease

Which of the following actions by the Federal Reserve will result in an increase in banks' excess reserves?

• buying bonds on the open market

• selling bonds on the open market

• increasing the discount rate

• increasing the reserve requirement

• increasing the federal funds rate

This country’s NRU is 6%. What is their targeted inflation rate?

• 5%

• 2%

• 3%

• 4%

Check all that apply: Which THREE graphs show the Money Market?

• Graph B

• Graph A

• Graph C

• Graph D

• Graph AB

What is the primary tool used by the Federal Reserve to control the money supply?

• Open market operations

• Discount rate adjustments

• Reserve requirement changes

• Interest on reserves

If the reserve requirement is 10% and a bank receives a $1,000 deposit, how much can it lend out?

• $100

• $900

• $1,000

• $10,000

Which of the following is a function of the Federal Reserve?

• Regulating the stock market

• Controlling fiscal policy

• Managing the money supply

• Setting tax rates

What happens to the money supply when the Federal Reserve buys government securities?

• It decreases

• It remains unchanged

• It increases

• It becomes volatile