The Fed Can Increase Reserves in the Banking System Through

question 12

Multiple Choice

The Fed can increase reserves in the banking system through which of the following actions?

• A)selling securities
• B)buying securities
• C)decreasing discount loans
• D)increasing the required reserve ratio

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Definitions:

Inflation

The velocity at which the aggregate price level for goods and services elevates, thereby reducing purchasing capability.

Nominal Interest Rate

The interest rate before adjustments for inflation. It is the rate quoted on loans and deposits.

Inflation Rate

The Inflation Rate is a measure of the rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling, usually expressed as a percentage.

Shoeleather Costs

The increased costs of transactions caused by inflation, including the time and effort spent to avoid holding cash that is rapidly losing value.