Question

"Problems and Applications Q2

When the Fed sells bonds in open-market operations, it ______ the money supply.
If the Fed wants to decrease the money supply _______, it can _______ the reserve requirement.
When the Fed increases the interest rate it pays on reserves, the money supply will ______.
When the FOMC decreases its target for the federal funds rate, the money supply will ______.
When Citibank repays a loan it had previously taken from the Fed, it ______ the money supply."

Answer 1

When the Feds sells bond in open market, it INCREASE the money supply.

If the Feds want to decrease the money supply in THE ECONOMY, it can INCREASE the reserve requirements.

When the Feds increases the interest rate it pays on reserve, the money supply will DECREASE.

When Fomc decrease it target for the federal funds rate, the money supply will INCREASE.

When Citibank repays a loan it had previously taken from the Feds, it DECREASES the money supply.