1/ The Federal funds rate is the interest rate:

• banks charge one another for Fed funds or reserves.
• the Fed pays on reserves.
• the Fed charges banks for loans from the discount window.
• on U.S. Treasury bonds.

2/ When the Fed purchases bonds, the Fed:

• increases the reserves and the federal funds rate increases.
• reduces the reserves and the federal funds rate decreases.
• increases the reserves and the federal funds rate decreases.
• reduces the reserves and the federal funds rate increases.

3/ In the short run, if the Fed undertakes contractionary monetary policy, the effect will be to shift the:

• AD curve out to the right.
• SAS curve down.
• SAS curve up.
• AD curve in to the left.

4/ Which of the following Fed actionsincreasesthe money supply?

• Decreasing the amount of loans made to commercial banks
• Selling government securities in the open market
• Increasing reserve requirements
• Buying government securities in the open market

5/ When the Fed increases the reserve requirement, it:

• contracts the money supply because banks have less available to lend.
• expands the money supply because banks have more available to lend.
• contracts the money supply because banks have more available to lend.
• expands the money supply because banks have less available to lend.

6/ To increase the nation's money supply, the Fed can:

• decrease the discount rate.
• increase the required reserve ratio.
• increase the discount rate.
• sell bonds.

7/ Suppose the money multiplier in the United States is 2.5. If the Fed wants to reduce the money supply by 1,000 it should:

• buy government securities worth 250.
• sell government securities worth 250.
• buy government securities worth 400.
• sell government securities worth 400.

8/ During an inflationary period, policy makers who use the AS/AD model would probably recommend an open market:

• sale of government securities that raises interest rates.
• purchase of government securities that raises interest rates.
• purchase of government securities that reduces interest rates.
• sale of government securities that reduces interest rates.

9/ Suppose the money multiplier in the United States is 4. If the Fed wants to expand the money supply by 600 it should:

• sell government securities worth 600.
• sell government securities worth 150.
• buy government securities worth 150.
• buy government securities worth 600.