Suppose the Fed Forecasts a Reduction in Excess Reserve Holdings

question 151

Multiple Choice

Suppose the Fed forecasts a reduction in excess reserve holdings by banks.It might offset the effect of this on the money supply by

• A) buying government securities.
• B) lowering the required reserve ratio.
• C) lowering the discount rate.
• D) selling government securities.
• E) a,b,and c

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Definitions:

Marginal Productivity

The additional output that is produced by adding one more unit of a factor of production, holding other factors constant.

Income Distribution

The way in which total income is divided among the population or different groups in an economy.

Labor Market

The supply and demand for labor, where employers seek to hire workers and workers look for employment.

Equilibrium Level

The equilibrium level is the point at which market supply equals market demand, resulting in a stable market condition where there is no inherent tendency for change.