1.Assume that inflation is increasing to 6% while the unemployment rate stays at about 3.6%. In this situation, the Fed will most likely ___ the target for the federal funds rate, which is predicted to___ spending.

a. decrease, increase

b. increase, increase

c. increase, decrease

d. decrease, decrease

2.A bank has been told by regulators that it needs to increase its capital to asset ratio. What are some of the actions the bank can take to obtain a higher capital to asset ratio? (Mark ALL of the actions below that can help in increasing the ratio.)

a. Sell bonds and add the funds to reserves.

b. Issue new equity.

c. Pay out less dividends.

d. Retain less of the earnings.