If the Fed Wants to Increase the Lending Capacity of the System

question 118

Multiple Choice

If the Fed wants to increase the lending capacity of the system by $60 billion and the reserve requirement is 10 percent,it should

• A)Buy $60 billion in bonds from banks.
• B)Buy $6 billion in bonds from banks.
• C)Sell $60 billion in bonds to the public.
• D)Sell $6 billion in bonds to the public.

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Definitions:

FICA - Medicare

Part of the Federal Insurance Contributions Act taxes, specifically aimed at funding Medicare, a healthcare program for the elderly and certain disabled individuals in the United States.

Withheld

Refers to a portion of an individual's earnings or payments that is not provided to them but is instead held back, often for tax purposes.

Matched by Employer

Pertains to contributions or payments, typically toward FICA taxes or retirement funds, that an employer duplicates for an employee.

Contingent Liability

A potential financial obligation that may occur or become payable in the future, depending on the outcome of a specific event.