RR+ERRR+ER==TR; TR-RR=ER; TR; TR-RR=ER; TR-ER=RR;TR-ER=RR; M M x x ERER==PMC; PMC(PMC; PMC(PublicPublic)+1)+1stst DD DD==TMS; PMC(TMS; PMC(FedFed))==TMSTMS

BanksBanks & & PublicPublic (all(all DDDD of of PublicPublic are subject to theare subject to the RR; RR; rest is ER & can be loaned out)rest is ER & can be loaned out)

1. No ER & RR is 20%; 1. No ER & RR is 20%; DDDD of $10 M is made in the of $10 M is made in the Thunder BankThunder Bank. . MSMS is is $_____M. ER increase by $____M. Potential Money Creation in the $_____M. ER increase by $____M. Potential Money Creation in the banking system is $_____M. Potential TMS is $____million.banking system is $_____M. Potential TMS is $____million.2. T2. There are nohere are no ER ER & & RR is 25% & RR is 25% & $16,000$16,000 is is deposited deposited in thein the Duck BankDuck Bank. . MSMS is is $_______. This one bank can increase its loans by a maximum of $_______. This one bank can increase its loans by a maximum of $_______. Potential Money Creation $_______. Potential Money Creation in thein the banking system is $_________. banking system is $_________. Potential Total Money Supply could be $__________.Potential Total Money Supply could be $__________.3. 3. Econ BankEcon Bank has has ER of $5,000; ER of $5,000; DDDD are are $100,000$100,000; RR; RR is is 25%. TR 25%. TR areare $_______. $_______.4. 4. DDDD are are $10,000$10,000; ER ; ER are $are $1,000; TR 1,000; TR are $are $3,000; RR 3,000; RR areare _________. _________. [TR-ER[TR-ER==RR].RR].

5. 5. Nomics BankNomics Bank has ER of $10,000; DD of $100,000; RR of 40%. TR are $_________. has ER of $10,000; DD of $100,000; RR of 40%. TR are $_________. With ER above, Potential Money Creation in the banking system is $__________.With ER above, Potential Money Creation in the banking system is $__________.6. 6. Friar BankFriar Bank has DD of $100,000; RR is 20%; RR & ER are equal. TR are $________. has DD of $100,000; RR is 20%; RR & ER are equal. TR are $________.7. 7. If ER in a If ER in a bankbank are $10,000; are $10,000; DDDD are are $200,000$200,000, , & the& the RR are 10%. TR are $_______. RR are 10%. TR are $_______.8. 8. NNo o ER & RRER & RR is is 25%. 25%. DDDD of of $100,000$100,000 is madeis made. MS. MS is is $_______. This single bank $_______. This single bank cancan

increase its loans by $______. PMC increase its loans by $______. PMC in thein the systemsystem is $________. TMS is $________. TMS is is $_________.$_________.

1010 8840 40 50 50

16,00016,00012,00012,000 48,00048,000

64,00064,00030,00030,000

$2,000$2,000$50,000$50,000

25,00025,00040,00040,00030,00030,000

100,000100,00075,00075,000 300,000300,000 400,000400,000

BanksBanks and theand the PublicPublic

MS = currency + DD of PublicMS = currency + DD of Public

[RR[RR++ERER==TR; TRTR; TR--RRRR==ER; TRER; TR--ERER==RR; MxERRR; MxER==PMC; PMC(PMC; PMC(PublicPublic)+1)+1stst DD=TMS; PMC( DD=TMS; PMC(FedFed)=TMS])=TMS]

MS = Currency + DD of PublicMS = Currency + DD of Public[Money borrowed from the [Money borrowed from the FedFed [or gained thru bond sales][or gained thru bond sales] is ER & can be loaned out] is ER & can be loaned out]9. RR is 25%; 9. RR is 25%; Econ BankEcon Bank borrows $25,000 from the borrows $25,000 from the FedFed; its ER are increased by; its ER are increased by$______. P$______. Potential otential MMoneyoney C Creationreation in thein the system is system is $_______. P$_______. Potential otential TMS is $_______.TMS is $_______.10. RR10. RR is is 5050%%; a ; a bankbank borrows $20,000 borrows $20,000 from thefrom the FedFed; ; thisthis one bank’sone bank’s ER ER are increasedare increased

by $by $_____. P_____. Potentialotential MMoney oney CCreationreation in thein the system system is is $______. P$______. Potential otential TMS TMS is $______is $______

11. RR is 20%; the 11. RR is 20%; the Duck BankDuck Bank sells $10 M of bonds to the sells $10 M of bonds to the FedFed; Duck Bank’s ER are; Duck Bank’s ER are increasedincreased by by $______mil. P$______mil. PMC in theMC in the system is $___________. TMS is $__________. system is $___________. TMS is $__________.12. RR is 20%; 12. RR is 20%; FedFed buys $50,000 of securities from buys $50,000 of securities from Keynes BankKeynes Bank. Its ER are . Its ER are increased by $___________. Potential Money Creation in the banking system isincreased by $___________. Potential Money Creation in the banking system is $______________. Potential TMS is $______________.$______________. Potential TMS is $______________.13.13. 25% RR; 25% RR; FedFed buys $400 million of bonds from the buys $400 million of bonds from the Friar BankFriar Bank. This one. This one bank’s ER are increased by $_______million.bank’s ER are increased by $_______million.14. RR is 50%; the 14. RR is 50%; the FedFed sells $200 million of bonds to a sells $200 million of bonds to a bankbank; its ER are; its ER are (increased/decreased) by $_______. Potential Money Creation in the(increased/decreased) by $_______. Potential Money Creation in the banking system is (increased/decreased) by $________.banking system is (increased/decreased) by $________.15. RR is 10%; a 15. RR is 10%; a bankbank borrows $10 million from the borrows $10 million from the FedFed; this one bank’s; this one bank’s ER are increased by $_______ million. PMC in the banking system is ER are increased by $_______ million. PMC in the banking system is $_______million. Potential TMS is $_______million. $_______million. Potential TMS is $_______million.

BanksBanks and the and the FedFed

25,00025,000 100,000100,000 100,000100,000

20,00020,000 40,00040,000 40,00040,000

1010 5050 million million 5050 million million

50,00050,000250,000250,000 250,000250,000

400400

200200 M M

400400 M M

1010100100 100100

[RR[RR++ERER=T=TR; TR-RRR; TR-RR==ER; TRER; TR--ERER==RR; MxERRR; MxER==PMC; PMC(PMC; PMC(PublicPublic)+1)+1stst DD DD==TMS; PMC(TMS; PMC(FedFed))==TMS]TMS]

MS = Currency + DD of the PublicMS = Currency + DD of the Public [When FedFed buys securities from PublicPublic, they will put the money in their DDDD]16. RR is 50%; FedFed buys $10 M of bonds from the PublicPublic. MSMS is increased by _______. ER are increased by ____. PMC in the system is _______. Potential TMS is _______.17. RR is 25%; FedFed buys $100 M of bonds from the PublicPublic. The MSMS is increased _______. ER are increased by ______. PMC in the system is _______. Potential TMS is ________.18. RR is 50%; FedFed sells $200 M of bonds to the PublicPublic. The MSMS is (incr/decr) by __________. ER are (incr/decr) by _________. PMC in the banking system is (increased/decreased) by _______. Potential TMS is (incr/decr) by _______.19. RR is 20%; FedFed buys $5 million of securities from the PublicPublic. The MSMS is increased by _______. ER are increased by _______. Potential Money Creation in the banking system is _______. Potential TMS is _________.20. RR is 10%; FedFed buys $50 million of bonds from the PublicPublic. The MSMS is increased by _______. ER are increased by _______. PMC in the banking system is __________. Potential Total Money Supply is __________.

$10 M$10 M$5 M$5 M $10 M$10 M $20 M$20 M

$$100100 M M$$7575 M M $$300300 M M $$400400 M M

$200 M$200 M $$100 M100 M$$200200 M M $$400400 M M

$5 M$5 M $4 M$4 M$20 M$20 M $25 M$25 M

$50 M$50 M $45 M$45 M$450$450 M M $500 M$500 M

FedFed and theand the PublicPublic

Practice Money Quiz Practice Money Quiz [[MS=Curr. + DD of PublicMS=Curr. + DD of Public]][RR+ER=TR; TR-RR=ER; [RR+ER=TR; TR-RR=ER; TR-ER=RR;TR-ER=RR; MxER=PMC; PMC( MxER=PMC; PMC(PublicPublic)+1stDD=TMS; PMC()+1stDD=TMS; PMC(FedFed)=TMS])=TMS]

1. The 1. The Brown BankBrown Bank [with no ER] borrows $100,000 from the [with no ER] borrows $100,000 from the Fed.Fed. With a RR of 50% With a RR of 50% the the Brown BankBrown Bank can increase its loans by a maximum of __________. PMC in the can increase its loans by a maximum of __________. PMC in the banking system is __________. Potential TMS is ______________.banking system is __________. Potential TMS is ______________.2. The 2. The Tyll BankTyll Bank has has DDDD of $10,000; RR is 10%; RR & ER of $10,000; RR is 10%; RR & ER are are equal. TR equal. TR areare _______. _______.3. RR is 20%; 3. RR is 20%; FedFed buys $50,000 of securities from the buys $50,000 of securities from the publicpublic. Possible Money. Possible Money Creation in the banking system is __________. Potential TMS is ____________.Creation in the banking system is __________. Potential TMS is ____________.4. RR is 40%; 4. RR is 40%; Ray BankRay Bank borrows $1 million from the borrows $1 million from the FedFed.. This bank can increase This bank can increase its loans by a maximum of __________. PMC is __________. TMS is __________.its loans by a maximum of __________. PMC is __________. TMS is __________.5. RR is 10% & there are no ER; $10,000 is 5. RR is 10% & there are no ER; $10,000 is depositeddeposited in the in the Alvarado BankAlvarado Bank. . This bank can increase its loans by a maximum of __________. Possible MoneyThis bank can increase its loans by a maximum of __________. Possible Money Creation in the banking system is ___________. Potential TMs is _____________.Creation in the banking system is ___________. Potential TMs is _____________.6. There are no ER in the 6. There are no ER in the Clark BankClark Bank. Nicole now . Nicole now depositsdeposits $10.00. With $10.00. With a RR of 20%, PMC in the system is __________. Potential TMs is ___________. a RR of 20%, PMC in the system is __________. Potential TMs is ___________. 7. The 7. The Cochran BankCochran Bank has a RR of 50%; the has a RR of 50%; the FedFed buys $50 million of bonds from buys $50 million of bonds from this bank. PMC in the system is __________. Potential TMS is __________.this bank. PMC in the system is __________. Potential TMS is __________.8. 8. Riley BankRiley Bank has ER of $50,000; DD of $100,000, & a RR of 20%. TR are ________. has ER of $50,000; DD of $100,000, & a RR of 20%. TR are ________.9. RR is 40%; the 9. RR is 40%; the Collins BankCollins Bank borrows $10 million from the borrows $10 million from the FedFed. This bank’s ER. This bank’s ER are increased by _________. PMC is __________. Potential TMS is ___________. are increased by _________. PMC is __________. Potential TMS is ___________. 10. RR is 10%; RR is 10%; Joseph BankJoseph Bank borrows $5 from the borrows $5 from the FedFed; the ; the Joseph Bank’sJoseph Bank’s ER ER are increased by _______. PMC is __________. Potential TMS is __________. are increased by _______. PMC is __________. Potential TMS is __________.

$$100,000100,000$$200,000200,000 $200,000$200,000

$2,000$2,000

$200,000$200,000 $250,000$250,000

$$11 mil. mil. $2.5$2.5 milmil.. $$2.52.5 M M

$9,000$9,000$90,000$90,000 $100,000$100,000

$40.00$40.00 $50.00$50.00

$100 M$100 M $100 M$100 M $70,000$70,000

$10 M$10 M $25 M$25 M $25 M$25 M

$5.00$5.00 $50.00$50.00 $50.00$50.00

Commercial BanksCommercial Banks FedFed PublicPublic

Money Quiz 1 Money Quiz 1 [[MSMS = = Curr. + DD of PublicCurr. + DD of Public]][RR+ER=TR; TR-RR=ER; TR=ER=RR; MxER=PMC; PMC([RR+ER=TR; TR-RR=ER; TR=ER=RR; MxER=PMC; PMC(PublicPublic)+1)+1stst DD=PMC; PMC( DD=PMC; PMC(FedFed)=PMC])=PMC]

1. RR1. RR is is 2525% & the% & the Rostro BankRostro Bank has nohas no ER. ER. SSuzy uzy depositsdeposits((DDDD) $100,000 ) $100,000 there.there. ThisThis

bank bank can increase itscan increase its loans loans by aby a maximum maximum of of ______. PMC is ______. TMS is _______. ______. PMC is ______. TMS is _______.2. RR is 50%; the 2. RR is 50%; the Tuason BankTuason Bank borrows $100,000 from the borrows $100,000 from the FedFed. This one bank can. This one bank can increase its loans by a maximum of _______. PMC is _______. TMS is _______.increase its loans by a maximum of _______. PMC is _______. TMS is _______.3. RR is 25%; 3. RR is 25%; FedFed buys $100,000 of securities from the buys $100,000 of securities from the publicpublic. . Potential Money Creation in the system is _______. Potential TMS is _________.Potential Money Creation in the system is _______. Potential TMS is _________.4. T4. The he Volante BankVolante Bank has has DDDD of of $200,000; RR$200,000; RR is is 10%; RR & ER 10%; RR & ER are equalare equal. TR . TR are are _______._______.5. The 5. The Luu BankLuu Bank, with no ER, borrows $200,000 from the , with no ER, borrows $200,000 from the FedFed. With a RR of 10%,. With a RR of 10%, this bank can increase its loans by _________. PMC in the system is __________.this bank can increase its loans by _________. PMC in the system is __________.6. RR are 20%; the 6. RR are 20%; the Gohsman BankGohsman Bank borrows $1 from the borrows $1 from the FedFed; this bank can increase; this bank can increase its loans by a maximum of _________. PMC in the banking system is __________.its loans by a maximum of _________. PMC in the banking system is __________.7. RR is 50%; the 7. RR is 50%; the Alvarado BankAlvarado Bank borrows $1 million from the borrows $1 million from the FedFed; this bank’s ER; this bank’s ER are increased by _______. PMC in the system is __________. TMS is __________.are increased by _______. PMC in the system is __________. TMS is __________.8. 8. The The Tyll BankTyll Bank has has ER ER of of $20,000; DD $20,000; DD of of $200,000, $200,000, & a& a RR of 10%. TR RR of 10%. TR areare _____. _____.9. RR is 25%; 9. RR is 25%; FedFed buys $100 million of bonds from the buys $100 million of bonds from the Brown BankBrown Bank. Potential . Potential Money creation Money creation in thein the banking system is ________. Potential TMS is _________. banking system is ________. Potential TMS is _________.10. There are no ER in the 10. There are no ER in the Clark BankClark Bank. Lou . Lou depositsdeposits $2.50. With RR of 20%, $2.50. With RR of 20%, PMC in the banking system is ____________. Potential TMS is _____________. PMC in the banking system is ____________. Potential TMS is _____________.

$100,000$100,000

$100,000$100,000 $200,000$200,000 $200,000$200,000

$300,000$300,000 $400,000$400,000$40,000$40,000

$$200,000200,000 $$22 million million

$$1.001.00 $$5.005.00

$$11 mil. mil. $2 mil.$2 mil. $2 mil.$2 mil.$$40,00040,000

$400$400 mil. mil. $400$400 mil mil

$10.00$10.00 $12.50$12.50

BanksBanks FedFed PublicPublic

$$3300,00000,000 $$4400,00000,000$$7575,000,000

Money Quiz 2 Money Quiz 2 [[MSMS = Curr. + DD of Public= Curr. + DD of Public]][RR+ER[RR+ER==TR; TR-RRTR; TR-RR==ER; ER; TR-ER=RR;TR-ER=RR; MxER MxER==PMC;PMC(PMC;PMC(PublicPublic)+1)+1stst DD DD==TMS; PMC(TMS; PMC(FedFed)=TMS])=TMS]

1. RR is 5% & there are no ER in the 1. RR is 5% & there are no ER in the Cochran BankCochran Bank. LuLu . LuLu depositsdeposits[[DDDD] $1.00 ] $1.00 there. This one bank can increase its loans by a maximum of _______.there. This one bank can increase its loans by a maximum of _______.2. RR is 25%; the 2. RR is 25%; the Collins BankCollins Bank borrows $1 million from the borrows $1 million from the Fed Fed. . This one bank can increase its loans by a maximum of ____________.This one bank can increase its loans by a maximum of ____________.3. RR is 50%; the 3. RR is 50%; the FedFed buys $100,000 of securities from the buys $100,000 of securities from the publicpublic. . Potential Money Creation in the banking system is ____________.Potential Money Creation in the banking system is ____________.4. The 4. The Joseph BankJoseph Bank has DD of $400,000; RR is 10%; RR & ER are equal. has DD of $400,000; RR is 10%; RR & ER are equal. TR are ____________.TR are ____________.5. The 5. The Ray BankRay Bank , with no ER, borrows $500,000 from the , with no ER, borrows $500,000 from the FedFed.. With a RR With a RR of 10%, how much can this single bank increase its loans? ____________of 10%, how much can this single bank increase its loans? ____________6. RR are 20%; the 6. RR are 20%; the FedFed buys $25,000 of securities from the buys $25,000 of securities from the publicpublic. Potential. Potential Money Creation in the banking system is ____________.Money Creation in the banking system is ____________.7. RR is 20%; the 7. RR is 20%; the Riley BankRiley Bank borrows $1 million from the borrows $1 million from the FedFed. . This single bank’s ER are increased by ____________. This single bank’s ER are increased by ____________. 8. RR is 25%; 8. RR is 25%; FedFed buys $200 million of securities from the buys $200 million of securities from the publicpublic.. Potential Total Money Supply[TMS] could be as much as ____________.Potential Total Money Supply[TMS] could be as much as ____________.9. The RR is 25% & the 9. The RR is 25% & the FedFed buys buys $10 million of bonds from the $10 million of bonds from the Rostro BankRostro Bank.. Potential Money Creation in the banking system could be ____________.Potential Money Creation in the banking system could be ____________.10. There are no excess reserves in the 10. There are no excess reserves in the Tuason BankTuason Bank. With RR of 50%, Angela . With RR of 50%, Angela depositsdeposits [ [DDDD] $50.00 ] $50.00 there.there. P Potential otential Money Creation Money Creation in thein the system is _______. system is _______.

.95.95

$1 million$1 million

$100,000$100,000

$500,000$500,000

$100,000$100,000

$1 million$1 million

$800 million.$800 million.

$40 million$40 million

$50.00$50.00

$80,000$80,000

Commercial BanksCommercial Banks Fed Fed PublicPublic

48. The 3 tools of monetary policy3 tools of monetary policy are open market operations, changes in RR, & (changes in T/changes in G/ changes in discount rate).

49. The main toolmain tool of theof the Fed Fed in regulating the MS is (open-market operations/DR/RR).

50. When the FeFedd[$$$$] sells securities to the PUBLICPUBLIC[T-bills], DDDD (don’t change/incr/decr) & banking system RR, ER & TR (incr/decr).51. When the FedFed[T-bills] buys securities from commercial bankscommercial banks[$$$$], DD (don’t change/increase/decrease) & ER and TR (increase/decrease).

52. When the commercial bankingcommercial banking systemsystem[$$$$] borrows from the FedFed, DD (don’t change/increase/decrease) but ER & TR (incr/decr).53. When commercial bankscommercial banks[$$$$] sell government securities to the FedFed[T-bills], DD (don’t change/incr/decr) but their ER & TR (do not change/incr/decr).54. When the PUBLICPUBLIC[T-bills] buys securities from the FedFed[$$$$], DD (don’t change/incr/decr) and RR, ER, & TR of banks (don’t change/incr/decr).55. When a commercial bankcommercial bank gets a loan from the FedFed, their lending ability (incr/decr).

56. Assume that the RR is 25% & the Thunder BankThunder Bank borrows $100,000 from the

FedFed., commercial bank ERs are increased $________. PMC in the banking system are increased by $_______. TMS can be as much as $________.57. The (margin requirement/discount rate) specifies the size of the down payment on stock purchasesdown payment on stock purchases. 58. If the Fed Fed were to increase the RR [10% to 20%]were to increase the RR [10% to 20%] we would expect (higher/lower) interest rates, a (reduced/expanded) GDP and (appreciation/depreciation) of the dollar. [less “C”, “Ig”, & “Xn”]

NS 48-58NS 48-58 ((MSMS == DDDD + + Currency of PublicCurrency of Public))

100,000100,000400,000400,000 400,000400,000

59. When the RR is increased [10RR is increased [10% to% to 50 50%%]], the ER of member banks are (increased/decreased) and the monetary multiplier is (incr/decr).60. Assume the RR is 25% and the FedFed buys $4 M of bonds from the publicpublic. The MS is increased by ($3/$4/) million and the PMC is increased by ($16/$12) M. Potential TMS is ($3/$4/$12/$16) M.61. When the Fed Fed lends to commercial bankscommercial banks, this is called the (Fed Funds Rate/discount rate) and when commercial bankscommercial banks make loans to one another, this is the (Fed Funds Rate/ Discount Rate). 62. The Keynesian cause-effect chain of ancause-effect chain of an easy money policyeasy money policy would be to (buy/sell) bonds; which would (increase/decrease) the MS, which would (lower/raise) interest rates & (incr/decr) Ig, “C”, Xn, & Y.63. If the FedFed were to buy government securitieswere to buy government securities in the open marketin the open market, we would anticipate (lower/higher) interest rates, an (expanded/contracted)

GDP, and (appreciation/depreciation) of the dollar.64. If the FedFed were reducing demand-pull inflationwere reducing demand-pull inflation, the proper policies would be (lower/raise) the discount rate, (lower/raise) the RR and ((buy/sell) government bonds.65. Monetary policyMonetary policy is is thought thought to beto be more effective more effective in (controlling inflation/

fighting depressions) and fiscal fiscal is is more effectivemore effective (controlling inflation/ fighting depressions).66.The “net export effect”“net export effect” of an “easy” money policy“easy” money policy (strengthens/ weakens) that policy, while the “net export effect” of “expansionary” fiscal policy (strengthens/weakens) that policy. [impact of interest rates]

NS 57-66NS 57-66

YYRR YY** Investment Demand

99%%

6%6%

33%%

0

Money MarketMoney Market $50$50 $60$60

AS

ADAD11

PLPL11

99%%

66%%

33%%

00

MSMS22ADAD22

PLPL22

$70$70 YYII

ADAD33DI

DDmm

PLPL33

MSMS11 MSMS33

$100$100 120120 140140 QQIIDD

II=$50]=$50] II=$60=$60

II=$70=$70

RDORDO

67. If 67. If AD is AD3AD is AD3, what must the Fed do to get to , what must the Fed do to get to AD2(FE GDP [Y*])AD2(FE GDP [Y*])?? (increase/decrease) the MS from ($120/$140) to ($100/$120).(increase/decrease) the MS from ($120/$140) to ($100/$120).68. If the 68. If the MS is MS1MS is MS1, & the goal of the Fed is , & the goal of the Fed is FE GDPFE GDP[[Y*Y*], they should], they should (increase/decrease) the MS from ($100/$120) to ($120/$140).(increase/decrease) the MS from ($100/$120) to ($120/$140).69. Which of the following would 69. Which of the following would shift the MS curve from shift the MS curve from MS3MS3 toto MS2 MS2?? (buying/selling) bonds.(buying/selling) bonds.70. If the 70. If the MS is MS2MS is MS2 and the goal of the Fed is and the goal of the Fed is FE GDP of Y*FE GDP of Y*, they should, they should (increase/decrease/don’t change) the Ms.(increase/decrease/don’t change) the Ms.

NS 67-70NS 67-70

71. 71. An An easy money policyeasy money policy will (apprec/deprec) the dollar & (incr/decr) U.S. Xn. will (apprec/deprec) the dollar & (incr/decr) U.S. Xn. A A tight money policytight money policy will (apprec/deprec) the dollar & (incr/decr) U.S. Xn. will (apprec/deprec) the dollar & (incr/decr) U.S. Xn.72. If the economy were in a 72. If the economy were in a severe recessionsevere recession, , proper monetary policyproper monetary policy would call would call for (lowering/raising) the discount rate, for (lowering/raising) the discount rate, (lowering/raising(lowering/raising) the RR, & (buying/selling)) the RR, & (buying/selling) bonds. Proper bonds. Proper fiscal policyfiscal policy would be to (incr/decr) “G” & (incr/decr) “T”, both of would be to (incr/decr) “G” & (incr/decr) “T”, both of which would result in a bugetary (deficit/surplus). which would result in a bugetary (deficit/surplus).

NS 71-72NS 71-72

1. If your bankbank borrows $50,000 from the FedFed, does this automatically increase the MS? _____ Does this loan increase the amount in RR?_____ ER? ____ With 10% RR, PMC is __________. TMS is __________.2. If the RR is 50% & the FedFed buys $100 mil. of securities from the publicpublic, then: MSMS is increased by ________. PMC is _________. TMS is ________.3. What will cause the Dt(& total demand) for money curve to shift rightDt(& total demand) for money curve to shift right? (increase/decrease) in nominal (money) Y?4. When the FedFed buys bonds from banksbuys bonds from banks [or gives them a loan], DD are (incr/decr/ unchanged) but their ER & TR both (incr/decr/unchanged).5. If the FedFed buys $10 million of securities from the publicpublic, with a RR of 40%, MSMS is increased by ________ & PMC is _________. TMS is ________.6. If the FedFed decreased the RR from 20% to 10%RR from 20% to 10%, we would expect (higher/lower) interest rates, (appreciation/depreciation) of the dollar, and an

(increase/decrease) in GDP.7. DD of $100,000 and RR of 25% in a commercial banking systemcommercial banking system with TR of $40,000. PMC in the banking system is ($240,000/$60,000).8. If you are estimating your expensesestimating your expenses for the prom at $3,000for the prom at $3,000, money is functioning as (unit of account/medium of exchange/store of value).

MoneyMoney, , BankingBanking, , & & FedFed Test Review 1-8Test Review 1-8

NoNo NoNoYesYes $500,000$500,000 $500,000$500,000

$100 $100 mil.mil. $100 $100 milmil.. $200$200 mil. mil.

$10 $10 mil.mil. $15 $15 mil.mil. $25 mil.$25 mil.

RR RR is is 20% Assets 20% Assets DDDD(Liabilities)(Liabilities) TR[RR+ER]=$20 TR[RR+ER]=$20 mil.mil. $100 million$100 million

11. How much can this 11. How much can this bankbank loan out? $______ loan out? $______12. If Pam AndersonPam Anderson puts $1,000$1,000 in this bankbank(DDDD),ER will increase by $$_______.

13. Possible Money Creation in the system could be $$________.

14. Potential Total Money Supply could be as much as $$_________.

00

800800

4,0004,000

5,0005,000

TR 11-14TR 11-14 MS = Currency + DD of Public

RR RR is is 20% Assets 20% Assets DDDD(Liabilities)(Liabilities)

TR[RR+ER] = TR[RR+ER] = $20 mil.$20 mil. $100 million

11. How much can 11. How much can Pam’sPam’s bankbank loan out? $______ loan out? $______12. If Pam Anderson’s BankPam Anderson’s Bank borrows $1,000 from the FedFed ER will increase by $$_______.

13. Possible Money Creation in the system could be $$_______.

14. Potential Total Money Supply could be as much as $$________.

00

1,0001,000

5,0005,000

5,0005,000

TR 11-14 TR 11-14 MS = Currency + DD of Public

PPam am AAnderson’snderson’s Bank Bank FedFed

RR RR is is 50% Assets 50% Assets DDDD(Liabilities)(Liabilities) TR[RR+ER]=$50 TR[RR+ER]=$50 mil.mil. $100 million$100 million

1. How much can this 1. How much can this bankbank loan out? $______ loan out? $______2. If Cameron DiazCameron Diaz puts $5,000$5,000 in this bankbank(DDDD), ER will increase by $$_______.

3. Possible Money Creation in the system could be $$________.

4. Potential Total Money Supply could be as much as $$_________.

00

2,5002,500

5,0005,000

10,00010,000

Extra PracticeExtra Practice MS = Currency + DD of publicMS = Currency + DD of public

Cameron fell in March, 2005 and had to have Cameron fell in March, 2005 and had to have 19 stitches in her head but she is OK now.19 stitches in her head but she is OK now.

RR RR is is 50% Assets 50% Assets DDDD(Liabilities)(Liabilities)

TR[RR+ER] = TR[RR+ER] = $50 mil.$50 mil. $100 million

11. How much can 11. How much can Cameron’sCameron’s bankbank loan out? $______ loan out? $______12. If Cameron Diaz’s BankCameron Diaz’s Bank borrows $5,000 from the FedFed ER will increase by $$_______.

13. Possible Money Creation in the system could be $$________.

14. Potential Total Money Supply could be as much as $$________.

00

5,0005,000

10,00010,000

10,00010,000

Extra PracticeExtra Practice MS = Currency + DD of Public

Cameron Diaz’s BankCameron Diaz’s Bank FedFed

15. If the goal is F.E., 15. If the goal is F.E., & the& the interest rateinterest rate is is 9%9%, a(an) (recess/, a(an) (recess/ inflat) gap exists, the inflat) gap exists, the FedFed should (incr/decr) the in. rate. should (incr/decr) the in. rate.16. If the 16. If the interest rate isinterest rate is 3%3%, a(an) (recess/inflat) gap exists, , a(an) (recess/inflat) gap exists, the the FedFed should (increase/decrease) the interest rate. should (increase/decrease) the interest rate.17. I17. If the f the interest rateinterest rate is is 6%6%, the the Fed Fed shoulshould d (incr/decr/do nothing)(incr/decr/do nothing) to the interest rate. to the interest rate. 18.18. To reduce To reduce inflationinflation,, the the Fed Fed should should (lower, lower, buy/raise, raise, sell)(lower, lower, buy/raise, raise, sell)

19. 19. To get out ofTo get out of a a recessionrecession, , the the Fed Fed should should (lower, lower, buy/raise, raise, sell)(lower, lower, buy/raise, raise, sell)

YYRR YY** Investment Demand

99%%

6%6%

33%%

0

Money MarketMoney Market $50$50 $60$60

AS

ADAD11

PLPL11

99%%

66%%

33%%

00

MSMS22ADAD22

PLPL22

$70$70 YYII

ADAD33DI

DDmm

PLPL33

MSMS11 MSMS33

$100$100 120120 140140 QQIIDD

II=$50]=$50] II=$60=$60

II=$70=$70

RDORDO

Test Review 15-19Test Review 15-19

1. If the RR is 40% and the FedFed buys $100 M of bonds from the publicpublic, then the MSMS is increased by _______. ER are increased by ______. PMC is _______. TMS would be ______.2. RR is 50% and the Bishop BankBishop Bank borrows $100 M from the FedFed. As a result, RR are increased by ______. ER is increased

by _______. PMC and TMS is increased by ________.3. Your bankbank has DDDD of $400,000 and the RR is 25%. If RR and ER are equal, then TR are _______.4. The Duck BankDuck Bank has ER of $60,000 & DD is $200,000. If the RR is 20%, TR are _________.5. RR is 20% & the FedFed buys $50 million of bonds from the publicpublic. The MSMS is increased by _______. ER are increased by _______. PMC is _______. TMS would be _________.

Additional Practice on Money CreationAdditional Practice on Money Creation

$100 M$100 M

$60 M$60 M $150 M$150 M $250 M$250 M

$100 M$100 M $200 M$200 M

$200,000$200,000

$100,000$100,000

$50 M$50 M

$40 M$40 M $200 M$200 M $250 M$250 M

00

BanksBanks PublicPublic FedFed

Hard Money Quizes Coming UpHard Money Quizes Coming Up

1.1. RR are 10% & there are no ER in the RR are 10% & there are no ER in the Riley BankRiley Bank. Matt. Matt depositsdeposits ( (DDDD) $200.00 there. This ) $200.00 there. This one bankone bank can increase can increase its loans by a maximum of $______.its loans by a maximum of $______.2. RR2. RR are are 20%; 20%; the the Rostro BankRostro Bank borrowsborrows $80,000 from the $80,000 from the FedFed.. This This one bankone bank can increase its loans by a maximum of $___. can increase its loans by a maximum of $___.3. RR3. RR areare 25%;25%; the the Fed Fed buys $8,000buys $8,000 of of securities securities from thefrom the PublicPublic.. PPotential otential MMoney oney CCreationreation in the banking system could be $____. in the banking system could be $____.4. The 4. The Tuason BankTuason Bank has DD of $10 million; has DD of $10 million; RR are 20%; RR & ER are equal. RR are 20%; RR & ER are equal. TRTR are $_____. are $_____.5. The 5. The Tyll BankTyll Bank, with no ER, borrows $20 M from the , with no ER, borrows $20 M from the FedFed.. WithWith a a RRRR of of 50%, 50%, PMCPMC in thein the banking system could banking system could be be $___.$___.6. RR6. RR are are 40%;40%; the the FedFed buys $100 M buys $100 M of securities of securities from thefrom the PublicPublic.. PPotential otential MMoney oney CCreationreation in the banking system could be $____. in the banking system could be $____.7. RR 7. RR areare 50%; the 50%; the Volante BankVolante Bank borrows $40 M from the borrows $40 M from the FedFed;; this this single bank’s ERsingle bank’s ER are increased by $_______. are increased by $_______.8. RR8. RR are are 50%; 50%; FedFed buys $50 billionbuys $50 billion of of securities securities from from the the PublicPublic.. PPotentialotential T Total otal MMoneyoney Supply Supply (TMS) could (TMS) could be asbe as much as $____. much as $____.9. The RR is 40% & the 9. The RR is 40% & the FedFed buys $20 M of bonds from a buys $20 M of bonds from a bankbank.. Potential Money CreationPotential Money Creation in the banking system is $_____. in the banking system is $_____.10. No ER 10. No ER in ain a bankbank & & RRRR is is 2525%. %. DDDD of $of $200 200 is madeis made. . PMCPMC is $__is $__

QQuiz uiz 44 Commercial BankCommercial Bank FedFed PublicPublicAnsw:Answ: 1. $180.00 2. $80,000 3. $24,000 4. $4 1. $180.00 2. $80,000 3. $24,000 4. $4 mil.mil. 5. $40 5. $40 mil.mil.6. $150 6. $150 mil.mil. 7. $40 7. $40 mil.mil. 8. $100 bil. 9. $50 mil. 10. $600.00 8. $100 bil. 9. $50 mil. 10. $600.00

QQuiz uiz 55 CCommercial ommercial BBankank FedFed PublicPublic1.1. RRRR are are 50% & there 50% & there are noare no ER ER in ain a BankBank. Suzy . Suzy depositsdeposits ( (DDDD)) $10.00 there. This $10.00 there. This one bankone bank can increase its loans can increase its loans by by ?____.?____.2. RR are 50%; the 2. RR are 50%; the Luu BankLuu Bank borrows $1 mil. from the borrows $1 mil. from the FedFed.. This bankThis bank can increase its loans can increase its loans by aby a maximum of of $_____. maximum of of $_____.3. RR3. RR are are 40%;40%; the the FedFed buys $buys $100,000100,000 of of securitiessecurities from thefrom the PublicPublic.. Potential Total Money SupplyPotential Total Money Supply could be as much as $______. could be as much as $______. 4. The 4. The Gohsman BankGohsman Bank has DD of $400,000 and RR is 25%. has DD of $400,000 and RR is 25%. RR & ER are equal. RR & ER are equal. Total ReservesTotal Reserves are $_____. are $_____.5. T5. The he Alvarado BankAlvarado Bank, , with nowith no ER, borrows $200,000 ER, borrows $200,000 from thefrom the FedFed.. With RR of 40%, With RR of 40%, this this oneone bank bank can increase its loans can increase its loans by by $__. $__.6. RR6. RR are are 50%; 50%; the the FedFed buys buys $60,000$60,000 of of securities securities from thefrom the PublicPublic.. Potential Money CreationPotential Money Creation in the banking system is $_____. in the banking system is $_____.7. RR 7. RR areare 10%; the 10%; the Cochran BankCochran Bank borrows $150 million from the borrows $150 million from the FedFed. This . This single bank’s ERsingle bank’s ER are increased by $_____. are increased by $_____.8. RR are 25%; 8. RR are 25%; FedFed buys $200 M of securities from the buys $200 M of securities from the PublicPublic.. Potential Total MoneyPotential Total Money Supply could be as much as $____. Supply could be as much as $____.9. RR 9. RR are are 25% 25% & the& the FedFed buysbuys $40 M$40 M of of bonds bonds from thefrom the Collins BankCollins Bank.. Potential Money CreationPotential Money Creation in the banking system could bein the banking system could be $___. $___.10. RR 10. RR areare 20% & no ER in the 20% & no ER in the Joseph BankJoseph Bank. Steph . Steph depositsdeposits $125.00 there. $125.00 there. PPotential otential MMoney oney CCreationreation in thein the system is $____. system is $____.

Answ:Answ: 1. $5.00 2. $1 1. $5.00 2. $1 mil.mil. 3. $250,000 4. $200,000 5. $200,000 3. $250,000 4. $200,000 5. $200,0006. $60,000 7. $150 6. $60,000 7. $150 mil.mil. 8. $800 8. $800 mil.mil. 9. $160 9. $160 mil.mil. 10. $500.00 10. $500.00

1.1. RRRR are are 40% & there 40% & there are noare no ER ER in ain a BankBank. Bo . Bo depositsdeposits ( (DDDD)) $100.00 $100.00 there.there. This This one bank can increase its loans can increase its loans by by ?____?____2. RR are 10%; the 2. RR are 10%; the Torres BankTorres Bank borrows $9 mil. from the borrows $9 mil. from the FedFed.. This bankThis bank can increase its loans can increase its loans by aby a maximum of of $_____ maximum of of $_____3. RR3. RR is is 50%;50%; the the FedFed buys $10,000buys $10,000 of of securities securities from thefrom the PublicPublic.. Potential Total Money SupplyPotential Total Money Supply could be as much as $____ could be as much as $____ 4. The 4. The John BankJohn Bank has DD of $100,000 and RR is 40%. has DD of $100,000 and RR is 40%. RR & ER are equal. RR & ER are equal. Total ReservesTotal Reserves are $_____. are $_____.5. T5. The he Martin BankMartin Bank, , with nowith no ER, borrows $500,000 ER, borrows $500,000 from thefrom the FedFed.. With RR of 20%, With RR of 20%, this this oneone bank bank can increase its loans can increase its loans by by $___ $___6. RR6. RR are are 50%; 50%; the the FedFed buys buys $500,000$500,000 of of securities securities from thefrom the PublicPublic.. Potential Money CreationPotential Money Creation in the banking system is $_____ in the banking system is $_____7. RR are 10%; the 7. RR are 10%; the Matthews BankMatthews Bank borrows $5 million borrows $5 million from thefrom the FedFed.. This This single bank’s ERsingle bank’s ER are increased by $_____ are increased by $_____8. RR are 10%; 8. RR are 10%; FedFed buys $10 M of securities from the buys $10 M of securities from the PublicPublic.. Potential Total MoneyPotential Total Money Supply could be as much as $____ Supply could be as much as $____9. RR are 25% 9. RR are 25% & the& the FedFed buys buys $8 M$8 M of of bonds bonds from thefrom the Weber BankWeber Bank.. Potential Money CreationPotential Money Creation in the banking system could bein the banking system could be $____ $____10. RR 10. RR are are 20% & no ER in the 20% & no ER in the Clark BankClark Bank. Steph . Steph depositsdeposits $100.00 there. $100.00 there. PPotential otential Total Money Supply Total Money Supply is $____ is $____

Quiz 6 Quiz 6 Commercial BanksCommercial Banks FedFed PublicPublicAnsw:Answ: 1. $60.00 2. $9 1. $60.00 2. $9 mil.mil. 3. $20,000 4. $80,000 5. $500,000 3. $20,000 4. $80,000 5. $500,0006. $500,000 7. $5 6. $500,000 7. $5 mil.mil. 8. $100 8. $100 mil.mil. 9. $32 9. $32 mil.mil. 10. $500.00 10. $500.00

Monetary Questions From 2000 AP ExamMonetary Questions From 2000 AP ExamMoney and the FedMoney and the Fed1. (61%) In the Keynesian modelKeynesian model, an expansionary monetary policyexpansionary monetary policy will lead to a. lower real interest rates and more investment b. lower real interest rates and lower prices c. higher real interest rates and lower prices d. higher real interest rates and higher real income e. higher nominal interest rates and more investment

2. (58%) Which of the following will most likely occur in an economy if more money ismore money is demanded than is supplieddemanded than is supplied? a. the amount of investment spending will increase.

d. interest rates will decrease b. the demand curve for money will shift to the left

e. interest rates will increase. c. the demand curve for money will shift to the right.

3. (64%) When consumers hold money rather than bonds because they expect thehold money rather than bonds because they expect the interest rate to increase in the futureinterest rate to increase in the future, they are holding money for what purposes? a. transactions

c. speculation (asset) b. unforeseen expenditures

d. illiquidity

Money CreationMoney Creation4. (80%) If on receiving a checking deposit of $300 a bank’s ER increased by $255checking deposit of $300 a bank’s ER increased by $255, the RRRR must be: a. 5% b. 15% c. 25% d. 35% e. 45%

When interest rates are too low, people will hold more asset (speculation) money. They don’t want to tie their money into interest rate bearing assets (like CDs & bonds) getting low returns. They will hold the speculative money until interest rates go back up.

5. (62%) The money-creating ability of the banking systemmoney-creating ability of the banking system will be less than thewill be less than the maximum amount indicated by the money multipliermaximum amount indicated by the money multiplier when a. interest rates are high b. the velocity of money is rising c. people hold a portion of their money in the form of currency d. the unemployment rate is low

6. (71%) RR is 20%. If a bank initially has no ER and $10,000 cash is deposited$10,000 cash is deposited in the bank, the maximum amount by which this bank may increase its loansthis bank may increase its loans is a. $2,000 b. $8,000 c. $10,000 d. $20,000 e. $50,0007. (86%) RR is 15% and that bank receives a new DD of $200. Which of the following will most likely occur in the bank’s balance sheet? Liabilities(DD)

Required Reserves a. increase by $200

increase by $170 b. increase by $200

increase by $30 c. increase by $200

no change d. decrease by $200

decrease by $30 e. decrease by $200

decrease by $170

The FedFed and Monetary PolicyMonetary Policy8. (89%) The Federal ReserveFederal Reserve can increase the money supply by a. selling gold reserves to the banks b. selling foreign currency holdings

c. buying government bonds on the open market d. borrowing reserves from foreign governments

9. (73%) An increase in the money supplyincrease in the money supply is most likely to have which of the following short-run effects on real interest rates and real outputshort-run effects on real interest rates and real output? Real Interest Rates

Real Output a. decrease

decrease b. decrease

increase c. increase

decrease d. increase

no change e. no change

increase

10. (81%) Under which of the following conditions would a restrictive (contractionary)restrictive (contractionary) monetary policymonetary policy be most appropriate? a. high inflation

d. low interest rates b. high unemployment

e. a budget deficit c. full employment with stable prices

11. (82%) The FedFed can change the U.S. money supplychange the U.S. money supply by changing the a. number of banks in operation

d. prime rate b. velocity of money

e. discount rate c. price level 12. (**30%) If the money stock decreases but nominal GDP remains constantmoney stock decreases but nominal GDP remains constant, which of the following has occurred? a. income velocity of money has increased.

d. price level has decreased. b. income velocity of money has decreased.

e. real output has decreased. c. price level has increased.

13. (54%) Policy-makers concerned about fostering long-run growth in an economy that is currently in a recessionrecession would most likely recommend recommend which of the following combinations of monetary and fiscal policy actionscombinations of monetary and fiscal policy actions? Monetary Policy

Fiscal Policy a. sell bonds

reduce taxes b. sell bonds

raise taxes c. no change

raise taxes d. buy bonds

reduce spending e. buy bonds

no change

14. (76%) Open market operationsOpen market operations refer to which of the following activities? a. the buying and selling of stocks in the New York stock Market b. the loans made by the Fed to member commercial banks c. the buying and selling of government securities by the Federal Reserve d. the government’s purchases and sales of municipal bonds e. the government’s contribution to net exports

15. (58%) An open market sale of bonds by theopen market sale of bonds by the FedFed will most likely change the money supplymoney supply, the interest rateinterest rate, and the value of the U.S. dollarvalue of the U.S. dollar in which of the following ways? Money SupplyMoney Supply

Interest RateInterest Rate

Value of the DollarValue of the Dollar a. increase

decrease

decrease b. increase

decrease

increase c. decrease

decrease

decrease d. decrease

increase

increase e. decrease

increase

decrease

The reason you don’t incr G hereThe reason you don’t incr G hereis that it would push up interestis that it would push up interestrates rates and and offset offset the the lower interestlower interestrates of the Fed’s buying bonds. rates of the Fed’s buying bonds.

1995 AP Exam1995 AP Exam16. (82%) Commercial banks can create moneyCommercial banks can create money by a. transferring depositors’ accounts at the Fed for conversion to cash b. buying Treasury bills from the Federal Reserve c. sending vault cash to the Fed d. maintaining a 100% reserve requirement e. lending excess reserves to customers

17. (65%) If the RR is 20%RR is 20%, the existence of $100 worth of ERexistence of $100 worth of ER in the banking system can lead to a maximum expansion of the money supplymaximum expansion of the money supply equal to a. $20 b. $100 c. $300 d. $500 e. $750

18. (71%) If the Fed lowers the RRFed lowers the RR, which of the following would most likely occurmost likely occur? a. Imports will rise, decreasing the trade deficit. b. The rate of saving will increase. c. Unemployment and inflation will both increase. d. Businesses will purchase more factories and equipment. e. The budget deficit will increase.

19. (61%) If the public’s desire to hold money as currency increasespublic’s desire to hold money as currency increases, what will the impact be on the banking systemimpact be on the banking system? a. Banks would be more able to reduce unemployment. b. Banks would be more able to decrease AS. c. Banks would be less able to decrease AS. d. Banks would be more able to expand credit. e. Banks would be less able to expand credit

More MS More MS means means lower I.R. & more Iglower I.R. & more Ig

Holding currency means less ER & higher I.R.Holding currency means less ER & higher I.R.

5x$100=$5005x$100=$500

20. (86%) Which of the combinationscombinations is most likely to cure a severe recessioncure a severe recession? Open-Market OperationsOpen-Market Operations TaxesTaxes Gov. SpendingGov. Spending a. Buy securities Increase Decrease b. Buy securities Decrease Increase c. Buy securities Decrease Decrease d. Sell securities Decrease Decrease e. Sell securities Increase Increase21. (61%) The demand for moneydemand for money increases when national income increasesnational income increases because a. spending on goods and services increases d. the MS increases b. interest rates increase e. the budget deficit increases c. the public becomes more optimistic about the future22. (76%) Suppose the RR is 20%RR is 20% and a single bank with no ER receives a $100 DDsingle bank with no ER receives a $100 DD from a new customer. The bank now has excess reserves equal tobank now has excess reserves equal to a. $20 b. $80 c. $100 d. $400 e. $50023. (45%) Which of the following is most likely to increasemost likely to increase if the public decides topublic decides to increase its holding of currencyincrease its holding of currency? a. the interest rate d. Employment b. The price level e. The reserve requirement c. Disposable personal income24. (47%) During a mild recessionmild recession, if policymakers want to reduce unemployment by reduce unemployment by increasing investmentincreasing investment, which of the following policies would be most appropriate? a. Equal increases in government expenditure and taxes b. An increase in government expenditure only c. An increase in transfer payments d. An increase in the reserve requirement e. Purchase of government securities by the Fed

Holding MS; bankshave less; higher I.R.

25. (73%) Which of the following monetary and fiscal policy combinationsmonetary and fiscal policy combinations would most likely result in a decrease in AD? Discount RateDiscount Rate Open-Market OperationsOpen-Market Operations Gov. SpendingGov. Spending a. Lower Buy bonds Increase b. Lower Buy bonds Decrease c. Raise Sell bonds Increase d. Raise Buy bonds Increase e. Raise Sell bonds Decrease26. (35%) Under which of the following circumstances would increasing the MS be increasing the MS be most effective in increasing real GDPmost effective in increasing real GDP? Interest RatesInterest Rates EmploymentEmployment Business OptimismBusiness Optimism a. High Full High b. High Less than full High c. Low Full High d. Low Full Low e. Low Less than full Low27. (57%) According to both monetaristsmonetarists and KeynesiansKeynesians, which of the following happens when the Fed reduces the discount rate? a. The demand for money decreases and market interest rates decrease. b. The demand for money increases and market interest rates increase. c. The supply of money increases and market interest rates decrease. d. The supply of money increases and market interest rates increase.

e. Both the demand for money and the MS increase and market interest rates increase.28. (79%) AllAll of the following are components of the MSare components of the MS in the U.S. EXCEPTEXCEPT a. paper money b. gold bullion c. checkable deposits d. coins e. demand deposits

29. (47%) If the Fed undertakesFed undertakes a a policypolicy to to reduce interest ratesreduce interest rates, international capitalinternational capital flowsflows (financial capital like CDs, bonds) will be affectedwill be affected in which of the following ways? a. Long-run capital outflows from the U.S. will decrease. b. Long-run capital inflows to the U.S. will increase. c. Short-run capital outflows from the U.S. will decrease. d. Short-run capital inflows to the U.S. will decrease. e. Short-run capital inflows to the U.S. will not change.30. (73%) If the FedFed wishes to use monetary policy to reinforce Congress’ wishes to use monetary policy to reinforce Congress’ fiscal policy changesfiscal policy changes, it should a. increase the MS when government spending is increased b. increase the MS when government spending is decreased c. decrease the Ms when government spending is increased d. increase interest rates when government spending is increased e. decrease interest rates when government spending is decreased

This would keep the interestrate from going up.

Lower U.S. interest rates will result in fewer capital inflows