1. Expansionary monetary policy:
A) increases the money supply, interest rates, consumption, and investment.
B) decreases the money supply, interest rates, consumption, and investment.
C) increases the money supply, decreases interest rates, and increases investment.
D) decreases the money supply, increases interest rates, and decreases investment.
E) ((B) and (D) above.
2. To increase the money supply, the Federal Reserve could:
A) lower the discount rate.
B) buy government bonds.
C) lower reserve requirements.
D) do all of the above.
E) none of the above.
3. Suppose that the required reserve ratio is 10% and banks have no excess reserves. The total demand deposit in the system is $100,000. Now the monetary authorities lower the required reserve ratio to 5%. Which of the following will likely follow?
A) The amount of excess reserves in the banking system will be $5,000.
B) The amount of excess reserves in the banking system will be $10,000.
C) Banking system can create more money.
D) All of the above.