1) Demand for money holdings are
a) postively related to the interest rate.
b) inversely related to the interest rate.
c) inversely related to real disposable income.
2) One result of a successful contractionary monetary policy would be
a) an increase in the money supply.
b) a decline in the price level.
c) an increase in business investment.
3) Assume the reserve ratio is 20 percent and Federal Reserve’s buys $4 million of Treasury bills from the public. The public places these new deposits into checking accounts. As a result, the supply of money is: Hint: Calculate the Monetary Multiplier
a) directly reduced by $4 million, but the money-creating potential of the commercial banking system is increased by $20 million.
b) directly increased by $4 million and the money-creating potential of the commercial banking system is increased by $20 million.
c) directly increased by $4 million and the money-creating potential of the commercial banking system is increased by $16 million.