If the Fed Wanted to Shift to a Restrictive Monetary

question 185

Multiple Choice

If the Fed wanted to shift to a restrictive monetary policy and reduce the money supply, it could

• A) decrease the reserve requirements imposed on commercial banks.
• B) purchase U.S. government securities and other financial assets in the open market.
• C) decrease the interest rate on loans extended to banks and other financial institutions.
• 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:

American Exports

entails goods and services produced in the United States that are sold and shipped to other countries.

Tobacco

A plant that contains nicotine and is grown for its leaves, which are dried and processed for smoking, chewing, or as snuff.

West Indies

A region in the Caribbean basin that encompasses a group of islands known for their diverse cultures, colonial history, and significant role in the global economy, especially during the era of the Atlantic slave trade.

Trade Deficits

A situation in which a country imports more goods and services than it exports, leading to a negative balance of trade.