If the Fed Wanted to Expand the Money Supply as Part

question 97

Multiple Choice

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

• A) increase the interest rate paid on excess reserves encouraging banks to extend more loans.
• B) decrease the interest rate paid on excess reserves encouraging banks to extend more loans.
• C) decrease the interest rate paid on excess reserves encouraging banks to hold excess reserves rather than extend more loans.
• D) increase the interest rate paid on excess reserves encouraging banks to hold excess reserves rather than extend more loans.

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Definitions:

Alternative

An option or choice that is available as a substitute or replacement for something else.

Market Supply Curve

A graphical representation showing the total quantity of a good that producers are willing to sell at various prices within a given time period.

Competitive Market

A market structure characterized by a large number of buyers and sellers, free entry and exit from the market, and products that are similar enough to be considered close substitutes, leading to price competition and efficiency.

Linear Marginal Cost

A situation where the additional cost of producing one more unit of output is constant, regardless of the quantity produced.