Please only answer if you are 100% certain and can explain all questions. Thank
ID: 1155689 • Letter: P
Question
Please only answer if you are 100% certain and can explain all questions. Thank you so much. My existence depends on these.
1) Which of the following is true?
a) To tackle inflation, the Fed buys treasury bills, thereby decreases the interest rate.
b) To tackle recession the Fed purchases treasury bills, thereby shifts the supply of treasury bills to the left.
c) To tackle inflation the Fed sells treasury bills, thereby decreases the interest rate.
d) None of the above.
1.1) Contractionary monetary policy
a) Increases investment and aggregate demand.
b) Aims to decrease aggregate supply.
c) May include a reduction in the rate of required reserves.
d) Increases the money supply
e) None.
f) Both c and d.
2) Contractionary fiscal policy
a) Decreases interest rate and aggregate demand.
b) Aims to decrease the money supply.
c) Includes a reduction in the rate of required reserves.
d) Includes a reduction in taxes.
e) a and d.
f) All of the above.
2.1) Which of the following is true?
a) The negative relationship between the FFR and the price of treasury bills is a result of a change in the supply of treasury bills.
b) The price of treasury bills is likely to increase in the time of recession because the Fed increases the demand of treasury bills.
c) The price of treasury bills is likely to decrease in the time of recession as a result of a decrease in the Federal Funds Rate.
d) a and b.
e) a and c.
3) Regulating the banking system is necessary
a) Because the banking system tends to shift the aggregate supply continuously to the right.
b) Because the banking system determines the money supply and money supply affects aggregate demand.
c) To minimize run on banks.
d) b and c.
e) All of the above.
4) Open market operations in the time of recession
a) Refers to selling treasury bills in order to increase interest rate.
b) Refers to buying treasury bills in order to decrease money supply
c) Refers to buying treasury bills in order to decrease the interest rate.
d) Refers to buying treasury bills in order to increase money supply.
e) c and d.
f) b and d.
Explanation / Answer
1) Inflation can be tackled by contractionary monetary policy. FED can sell treasury bills and withdraw money from the market and decrease the interest rate. In this way, FED can tackle the inflation. Option c is correct.
1.1) Contractionary monetary policy decreases the money supply. Reduction of the rate of the required reserve increase the money multiplier and thereby increase the money supply. option e is correct.
2) The contractionary fiscal policy is taken by the government to reduce aggregate demand. Example of such policy is decrease government expenditure, increase tax etc. By contractionary fiscal policy IS curve shifts downward(left), so the interest rate is decreased and aggregate demand is decreased. Option a is correct.
2.1) In the time of recession, FED reduces the interest rate to encourage borrowing and spending. At this low-interest rate, investors try to buy more t bill so demand increases and price increases. Option b is correct.
3) The money supply determines by the banking system, as bank decides how much money it would give as a loan. This affects the aggregate demand. The bank run occurs when a large number of customers withdraw their deposits from the bank due to concerns about bank's solvency. To minimize this run, the bank should be regulated. Option d is correct.
4) In the time of recession, expansionary policy should be taken. Buying treasury bills and create money in the economy is an expansionary policy. FED buys t bill in recession, price increased and interest rate decreases. Option e is correct.