Category: Money, Interest Rates And Output

The chain of events that results from an expansionary monetary policy is ?

A. aggregate output increases the demand for money increase the interest rate increase planned investment
B. money supply increases the interest rate decrease planned investment increases aggregate output increases and money demand increase
C. money supply increases the interest rate increase planned investment increases aggregate output increases and money demand increases
D. money demand increases the interest rate decreases planned investment increases aggregate output increases and money demand increases

Which one of the following is not true ?

A. The difference between the price at which commercial bank sells an asset to the central bank and the price it agrees to buy it back can be expressed as an annualized percentage of the selling price and this is called the refinancing rate
B. Commercial banks may borrow from and lend to each other and the interest rate at which they do this is called the refinancing rate
C. In the UK the refinancing rate is known as the repo rate and in the USA it is referred to as the discount rate.
D. If the central bank has bought some assets from a commercial bank with an agreement that the commercial bank will buy them back at a later date, then this would be called a repo
E. If the central bank raises its refinancing rate then the commercial banks will try to reduce their lending and so reduce the need to borrow from the central bank

Suppose the central bank purchases a government bond from a person who deposits the entire amount received from the sale in her bank the money supply will ?

A. rise by an amount that depends on the bank’s reserve ratio
B. rise by less than the amount of the deposit
C. fall by exactly the amount of the deposit as long as the bank does not change its reserve ratio
D. fall by exactly the amount of the deposit as long as the bank does not change its reserve ratio
E. be unchanged