Series 3: Exercise

Exercise

Answer the following questions.

1. 1. How do open market operations work?
2. A. The Fed buys and sells U.S. Treasuries and federal agency securities in the secondary market to speed up or slow down the economy.
3. B. The Fed raises and lowers margin requirements to slow or speed up speculative activity in the credit markets.
4. C. The Fed may lower the discount rate to make the discount window a more attractive source of borrowing.
5. D. The Fed raises or lowers its reserve requirements, allowing banks less or more lending ability.
6. 2. How does the Fed attempt to slow the economy using open market operations?
7. A. Purchase government securities to raise interest rates
8. B. Sell Treasury securities to remove money from the economy
9. C. Lower the federal funds target rate to reduce the banks’ excess reserves
10. D. Raise the reserve requirement to reduce the banks’ ability to lend money
11. 3. Which of the following is not generally true of an expansionary fiscal policy?
12. A. It lowers taxes.
13. B. It increases military spending.
14. C. It raises excise taxes to discourage imports.
15. D. It reduces government deficits.

Answers

1. 1. A. Open market