If the Fed Increases the Required Reserve Ratio at a Time

question 221

Multiple Choice

If the Fed increases the required reserve ratio at a time when banks are holding excess reserves,

• A)it forces banks to increase the money supply
• B)it forces banks to decrease the money supply
• C)it makes it possible for banks to increase the money supply but does not force them to do so
• D)the money supply will not increase as much as if the Fed left the reserve ratio alone
• E)it is conducting open market operations but not changing the money supply

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Definitions:

Supply-Side

Economic theory that emphasizes the importance of increasing supply (production of goods and services) as the key to economic growth, lower unemployment, and lower inflation.

Federal Budget Deficit

The shortfall in the federal government's budget when its expenditures surpass its revenues.

National Debt

The total amount of money that a country’s government has borrowed by issuing securities, usually through selling bonds.

Federal Receipts

Revenues collected by the federal government, primarily through taxes, but also including other sources such as customs duties and earnings from the Federal Reserve's operations.