Module V:Economic Institutions and Policies

12. 13. 14. 15. 16. 17. 18. 19. A bank that has insufficient reserves may a. borrow from other banks or from Central Bank (CB). b. stop making new loans c. sell securities to other banks or to the public d. do all of the above Which of the following is not a tool that CB can use to alter money supply? a. open market operations b. changes in the discount rate 231 c. changes in the required reserve ratio d. changes in tax rates Open market operations are a. used by the CB regularly to meet seasonal, cyclical, and erratic uctuations in the banks' need for reserves. b. used only sparingly by the CB in order not to upset the government bond market. 0. conducted primarily in order to make a prot for the CB. d. not very effective as a means of influencing the supply of money and credit. An increase in the required reserve ratio has the effect of a. reducing total reserves b. reducing the multiple by which the money supply can expand. 0. increasing excess reserves d. enabling the banks to reduce borrowings from the CB. The amount of money held for transactions balances will a. vary in the same direction as income b. vary in the same direction as interest rates 0. vary inversely with savings d. be larger the shorter the interval between paydays Precautionary balances would be expected to increase if a. business conditions were to become less certain. b. interest rate increased 0. people were expecting securities prices to rise d. prices and incomes fell The speculative motive for desiring to hold money balances a. means that more cash will be held if bond prices are expected to rise in the future. b. means that more cash will be held if interest rates are expected to be lower in the future. c. varies directly with income d. is greater the lower the rate of interest. An excess supply of money balances causes a. bond prices and interest rates to rise. b. bond prices and interest rates to fall. c. bond prices to fall and interest rates to rise d. bond prices to rise and interest rates to fall