The Fed controls bank lending and thus the process of money creation through its power to
A) alter legal reserve requirements and the dollar amount of reserves.
B) establish maximum and minimum interest rates on bank loans and deposits made with banks.
C) oversee the lending criteria banks use.
D) suspend the charter of banks whose lending activities contribute to an excessive rate of increase in the money supply.
A
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In the short run, when the Fed decreases the quantity of money
A) bond prices fall and the interest rate rises. B) bond prices rise and the interest rate falls. C) the demand for money increases. D) the supply of money curve shifts rightward.
Assume that foreign capital flows into a nation rise due to expected increases in stock market appreciation. If the nation has highly mobile international capital markets and a fixed exchange rate system, what happens to the real risk-free interest rate and reserves account in the context of the Three-Sector-Model? a. The real risk-free interest rate falls and reserves account becomes more
negative (or less positive). b. The real risk-free interest rate rises and reserves account becomes more negative (or less positive). c. The real risk-free interest rate and reserves account remain the same. d. The real risk-free interest rate rises and reserves account remains the same. e. There is not enough information to determine what happens to these two macroeconomic variables.
In Country A, the marginal propensity to consume is ½, and in Country B, it is ¾. What does this tell us about the multipliers for these countries?
a. Country A has a larger multiplier than Country B. b. Country B has a larger multiplier than Country A. c. Both countries have the same multiplier. d. Country B will start with a larger multiplier and end with a smaller one.
Explain the three different viewpoints (meanings) of the current account balance. Discuss the macroeconomic interpretations of a current account deficit.
What will be an ideal response?