If the Fed Wanted to Shift to a Restrictive Monetary

question 88

Multiple Choice

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

Financial Assets

Assets that derive value from contractual claims, such as stocks, bonds, bank deposits, and other investments.

Interest Rate

The percentage at which interest is paid by a borrower for the use of money they borrow from a lender.

Money Supply

The total amount of money available in an economy at a specific time, including cash, coins, and balances held in bank accounts.

Interest-Bearing Assets

Investments or savings that earn interest over time, such as bonds, savings accounts, or loans.