SOLVED

11) Assume that the M1 multiplier is 2.5. If the Federal Reserve purchases $200 worth of government securities, the money supply will A) rise by $200. B) rise by $500. C) fall by $200. D) fall by $500. 12) Assume that the M1 multiplier is 4. If the Federal Reserve purchases $200 worth of government securities, the money supply will A) rise by $200. B) rise by $800. C) fall by $200. D) fall by $800. 13) Assume that the M1 multiplier is 3 and the Federal Reserve sells $100 million worth of government securities. Bank reserves will A) rise by $100 million. B) fall by $100 million. C) fall by $300 million. D) fall by $33.33 million. 14) If the Federal Reserve sells $20 million worth of government securities and the M1 multiplier is 2.5. Bank reserves will A) fall by $20 million. B) fall by $50 million. C) fall by $16 million. D) fall by $8 million. 15) The money market rate observed most closely by the Open Market Account Manager is the A) Treasury bill rate. B) commercial paper rate. C) discount rate. D) federal funds rate. 16) An indication to the Open Market Account Manager that commercial banks are experiencing a liquidity surplus would be a A) falling federal funds rate. B) rising federal funds rate. C) falling discount rate. D) rising discount rate. 17) An indication to the Open Market Account Manager that commercial banks are experiencing a liquidity shortage would be a A) falling federal funds rate. B) rising federal funds rate. C) falling discount rate. D) rising discount rate. 18) An outright purchase of government securities by the Fed A) permanently increases bank reserves. B) temporarily increase bank reserves. C) permanently reduces bank reserves. D) temporarily reduces bank reserves. 19) An outright sale of government securities by the Fed A) permanently increases bank reserves. B) temporarily increases bank reserves. C) permanently reduces bank reserves. D) temporarily reduces bank reserves. 20) A repurchase agreement of government securities by the Fed A) permanently increases bank reserves. B) temporarily increases bank reserves. C) permanently reduces bank reserves. D) temporarily reduces bank reserves. 21) A reverse repurchase agreement of government securities by the Fed A) permanently increases bank reserves. B) temporarily increases bank reserves. C) permanently reduces bank reserves. D) temporarily reduces bank reserves. 22) A matched sale-purchase agreement of government securities by the Fed A) permanently increases bank reserves. B) temporarily increases bank reserves. C) permanently reduces bank reserves. D) temporarily reduces bank reserves. 23) A sound policy to combat a temporary liquidity surplus in the banking system would be A) a reduction in the discount rate. B) a decrease in the discount rate. C) the purchase of government securities by the Fed under a repurchase agreement. D) the sale of government securities by the Fed under a repurchase agreement. 24) A sound policy to combat a temporary liquidity shortage in the banking system would be A) a reduction in the discount rate. B) a decrease in the discount rate. C) the purchase of government securities by the Fed under a repurchase agreement. D) the sale of government securities by the Fed under a repurchase agreement.