When the Fed sells government bonds to a bank the initial effect on the bank is that

When the Fed sells government bonds to a bank, the initial effect on the bank is that its

a.assets increase

b.assets remain the same

c.liabilities decrease

d.assets decrease

e.liabilities increase

142.              A bank will be able to make fewer loans if it

a.sells bonds to the Fed

b.calls in loans

c.increases loans from excess reserves

d.borrows money in the federal funds market

e.buys bonds from the Fed

143.              During a period of inflation, the Fed is likely to

a.sell government bonds to banks in order to reduce the amount of loanable funds in
the market

b.buy government bonds from banks in order to reduce the amount of loanable funds
in the market

c.raise taxes in order to reduce the money supply

d.cut the legal reserve requirement in order to reduce the amount of excess reserves
banks have to loan out

e.cut the discount rate in order to increase the affordability of loanable funds

144.              If the Fed sells $10 million in bonds to a bank, and the legal reserve requirement is 20
                            percent, then the banking system will

a.decrease the money supply by $10 million

b.decrease the money supply by $40 million

c.decrease the money supply by $50 million

d.decrease the money supply by $2 million

e.increase the money supply by $50 million

145.              When the Fed sets a money supply target,

a.it expects the economy is heading toward recession

b.the demand for money adjusts to the discount rate

c.the legal reserve requirement becomes ineffective

d.the resulting interest rate is set as well

e.the interest rate is determined solely by the position of the demand curve for money

146.              If the Fed chooses to target the money supply, it

a.cannot at the same time control the interest rate

b.can only do so if the interest rate is targeted as well

c.gives up the opportunity of determining the legal reserve requirement

d.gives up the opportunity of determining the discount rate

e.gives up the opportunity of determining the federal funds rate

147.              If the Fed chooses to control the interest rate, it

a.gives up the opportunity of determining the discount rate

b.loses control over the money supply

c.gives up the opportunity of determining the legal reserve requirement

d.gives up the opportunity of determining the federal funds rate

e.gives up the opportunity of determining the level of investment

148.              From the 1950s through the 1970s, the Fed

a.favored controlling the money supply over controlling the interest rate

b.did not seem to favor either control over the money supply or the interest rate

c.favored controlling the interest rate over controlling the money supply

d.controlled whichever target that government did not control at the time

e.based its control policy—the interest rate or the money supply—on the value of the
dollar vis-à-vis other currencies

149.              At the beginning of the 1980s under Chairman Paul Volcker, the Fed

a.stressed control of interest rates over control of the money supply

b.did not seem to favor either control of the money supply or of interest rates

c.changed the emphasis between controlling the money supply and controlling the
interest rate depending on the state of international trade

d.stressed control of the money supply over control of the interest rate

e.controlled whichever target that seemed to be important at the time

150.              The Fed shifted from emphasizing the importance of a target interest rate to emphasizing
                            the importance of a target money supply in order to

a.combat inflation in the economy

b.combat unemployment in the economy

c.spur economic growth in the economy

d.create a better balance of trade for the economy

e.combat deflation in the economy