If the Fed Wanted to Expand the Money Supply as Part

question 181

Multiple Choice

If the Fed wanted to expand the money supply as part of an antirecession strategy, it could

• A) increase the reserve requirements imposed on commercial banks.
• B) decrease the interest rate paid on excess reserves encouraging banks to extend more loans.
• C) sell U.S. government securities and other financial assets that it is currently holding.
• D) raise the interest rate on loans extended to banks and other financial institutions.

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Definitions:

Net Exports

The value of a country's total exports minus the value of its total imports. It is a component of GDP that indicates a country's trade balance.

Money Supply

The sum of all financial assets in an economy at a specific time.

Interest Rates

The cost of borrowing money or the return for investing, usually expressed as a percentage per annum.

Aggregate Demand

Represents the total demand for goods and services within a particular economy at a given overall price level and in a given time period.