The Federal Reserve Has Decided It Wants to Increase Interest

question 46

Multiple Choice

The Federal Reserve has decided it wants to increase interest rates by decreasing the money supply through deposits held at financial intermediaries.All else equal,if the reserve requirement is 10% for all deposits,and the Fed wants to decrease deposits by $100 million,which of the following actions should be taken? Assume no excess reserves exist in the banking system.

• A) Buy government securities from dealers totaling $1 billion.
• B) Sell government securities to dealers totaling $111 million.
• C) Buy government securities from dealers totaling $11.1 million.
• D) Sell government securities to dealers totaling $11.1 million.
• E) None of the above.

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Definitions:

Tax Per Unit

A fixed amount charged as tax on a single unit of a good or service.

Good Citizen

An individual who acts responsibly, ethically, and with social awareness within their community.

Financial Incentives

Financial rewards provided to influence the behavior or decisions of individuals or organizations.

Shooting Deaths

Fatalities resulting from firearms, often highlighted in discussions on gun control and public safety.