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Money Supply and Government Expenditure

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1. Choose the Letter or Combination of Letter for those 2 questions

A. FED buys U.S government securities
B. FED Sells U.S government securities
C. FED lowers the discount rate.
D. FED raises the discount rate.
E. FED lowers the reserve ratio.
F. FED raises the reserve ratio.

I. Which of the above would increase or tend to increase the money supply?__A, C, E__

A. FED buys U.S government securities from the open market and pays money to the individuals. Then people have more money at hand and the money supply is increased.
C. Discount rate is the interest rate that private banks pay to borrow from the FED. When it is lowered, banks are more willing to borrow money and loan to the companies. Then the money supply is increased.
E. Reserve ratio refers to minimum reserves banks must hold. When reserve ratio is low, the commercial banks can loan out more of its deposit to the private companies. Then the FED increases money supply by lowering reserve ratio
II. Which of the above would decrease or tend to decrease the money supply?__B, D, F_
B. FED sells U.S government securities to the open market and receives money from the individuals. Then people have less money ...

Solution Summary

The solution determines the money supply and government expenditure.

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See Also This Related BrainMass Solution

Several Questions

1) What is meant by fiscal policy?
2) How does crowding out occur?
3) What is aggregate demand?
4) What is an automatic stabilizer? Name one.
5) Name three functions of money.
6) How does the reserve ratio set by the Federal Reserve affect the ability of banks to make loans?
7) Name the tools of the federal Reserve Bank. Which is most important?
8) How does the real interest rate differ form the nominal interest rate?
Questions Schiller Text - 10th Edition the economy today isbn 0072979119

Chapter 13
Ques 5. Does the fact that your bank keeps only a fraction of your account balance in reserve make you uncomfortable? Why don't people rush to the bank and retrieve their money? What would happen if they did?

Chapter 14
Ques 5. Why might the Fed want to decrease the money supply?

Chapter 15
Ques 2. Why do high interest rates so adversely affect the demand for housing and yet have so little influence on the demand for pizza?

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