1.If the reserve ratio is 10%, what would be the maximum effect of an open market purchase of $10,000 by the central bank?

a. Money supply would increase $10,000

b. Money supply would increase $100,000

c. Money supply would increase $1,000,000

d. Money supply would decrease $100,000

e. Money supply would decrease $10,000.

2.The appropriate monetary policy action meant to decrease rapid inflation would be to increase

a. the purchase of treasury securities

b. raising marginal income tax rates

c. the sale of government bonds

d. money supply by reinvesting dividends

e. government spending through social welfare programs.

3.Assuming velocity of money has risen 2%, what would be the result of a 4% increase in money supply when real output rises 2%?

a. Price level would rise 8%

b. Unemployment would fall 2%

c. Price level would rise 4%

d. Unemployment would rise 4.5%.

e. Cannot be determined with the available data.