part a

Suppose the Federal Reserve conducts $10 billion in open market bond purchases and that banks target a reserve ratio of 5 percent. What will happen to money supply once banks have time to make adjustments to their lending?

a An increase in the money supply of $10 billion

b An increase in the money supply of $50 billion

c An increase in the money supply of $200 billion

d A decrease in the money supply of $10 billion

part b

Which of the following would cause banks to increase the amount of excess reserves that they hold?

a Loans to customers look safe and market interest rates are high compared to the interest rate on excess reserves.

b The economy is booming and there is a great demand for business loans.

c Loans to customers look unusually risky or market interest rates are low compared to the interest rate on excess reserves.

d They anticipate a bank audit

part c

The decrease in taxes leads to what adjustment in the short-run economy?

a Lower taxes increase consumption spending in the economy, increasing aggregate demand.

b Lower taxes increase saving, decreasing aggregate demand.

c Lower taxes encourage business investment, increasing aggregate supply.

d Lower taxes decrease government spending, decreasing aggregate demand.

part d

Suppose that the Federal Reserve decides to use open market operations to bring the economy back towards equilibrium. What will they do, and with what goal in mind?

a Purchase U.S. Treasury bonds in order to increase aggregate demand.

b Purchase U.S. Treasury bonds in order to decrease aggregate demand.

c Sell U.S. Treasury bonds in order to increase aggregate demand.

d Sell U.S. Treasury bonds in order to decrease aggregate demand

Part E

Now think about the entire process, from the initial tax cut to the response by the Federal Reserve and the movement to the long run equilibrium. Compared to before the tax cut, real GDP is now

blank1 and the price level is now blank2 ?

. (possible answers: higher, lower, the same)

Part F

Suppose that the Federal Reserve takes too long to respond to the effects of the tax cut, and the economy returns to the full employment level of GDP naturally, as described in chapter 23. Then after the economy is back at full employment, the Federal Reserve belatedly sells U.S. Treasury bonds. The short run effect of this action will be tounemployment and toreal GDP. At the new short run equilibrium, real GDP will bethe full employment level of real GDP.

a decrease; increase; equal to

b decrease; increase; above

c increase; decrease; equal to

d increase; decrease; below

Part g

What does the Fed actually do if the Fed's goal is to have interest rates remain the same in a situation where the economy is growing?

a It stops buying bonds.

b It continues buying bonds.

c It buys fewer bonds.

d It stops selling bonds.

e It starts selling bonds.

part h

If the economy is at full employment, inflation is 2%, and the GDP is growing at 2%, what should the approximate growth in the money supply be? Assume there are no changes in how we are using money.

a 0%

b 2%

c 4%

d 6%

Please help me answer these questions I'm stuck and I keep getting them wrong.