Macroeconomics Unit 3 Challenge 2:
Monetary Policy with Complete
Solutions
The M1 definition of money includes ___________ ✔✔Physical currency and demand deposits
Select the answer below that has the three examples o
...
Macroeconomics Unit 3 Challenge 2:
Monetary Policy with Complete
Solutions
The M1 definition of money includes ___________ ✔✔Physical currency and demand deposits
Select the answer below that has the three examples of money in order from most liquid to least
liquid. ✔✔Dollar bills, checking account balances, money market mutual funds
Which of the following statements regarding different types of money is true? ✔✔Time deposits
belong in the least liquid category of money.
If the reserve requirement of a bank is 25%, then the multiplier effect will be ________ and $200
in M1 will increase the money supply by ________. ✔✔4; $800
If the reserve requirement of a bank is 50%, then the multiplier effect will be ________ and $100
in M1 will increase the money supply by ________. ✔✔2; $200
Which statement is NOT true regarding the way that the Federal Reserve controls the money
supply? ✔✔The U.S. Treasury sends the money it prints directly into circulation.
What is the result when the Federal Reserve buys Treasury bonds? ✔✔More currency in the hands
of the public
When the Fed sells bonds, the result is an increase in __________. ✔✔Interest rates
Fed member banks enter the federal funds market in order to __________. ✔✔Meet reserve
requirements
The federal funds rate is paid to __________. ✔✔banks who lend excess reserves to other member
banks
Which of the following statements is true as it relates to banks and the federal funds market?
✔✔Banks with less than the reserve requirement need overnight loans to meet their obligations.
Which statement below is true about the discount rate? ✔✔This is the rate used when banks borrow
directly from the Fed.
Which of the following statements is associated with deflation? ✔✔Prices fall, but loan payments
stay the same.
Which of the following statements regarding inflation is true? ✔✔When inflation is extreme, it
can destroy a country's currency.
All of the following are examples of expansionary policy EXCEPT __________. ✔✔selling
Treasury bonds
Which of the following is associated with contractionary monetary policy? ✔✔Increasing the
reserve requirement
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