Answer to Question #314078 in Macroeconomics for Lorenzo

Question

In a period of high unemployment and in order to stimulate the economy a central bank would probably:

a  raise the discount rate

b  raise the required reserve ratio

c  buy bonds through open market operations

d  increase government spending and cut taxes

      If the central bank decreases reserve requirements to stimulate the economy, which of the following is most likely to happen to interest rates and gross domestic product all things equal?

 

Interest Rates                     GDP

a. Increase                            Decrease

b. Increase                            Increase

c. Decrease                           Decrease

d. Decrease                          Increase 

If the required reserve ratio is 5% and the central bank buys $200 worth of securities, the maximum increase in the money supply will be

a. $ 2,000       b. $ 4,000      c. $ 600          c. $ 1,000

Answer 1

Answer to the first question is d; increase government spending and cut taxes.

Answer to the second question is d; decrease in interest rates and increase in GDP.

Answer to the third question is b; $ 4000