1. Reducing the required reserve ratio will cause

a. a decrease in the discount rate.

b. an increase in excess reserves.

c. a decrease in the money supply.

d. an increase in the demand for money.

2. What effect do open market purchases have on the money supply curve?

a. They shift it to the left.

b. They shift it to the right.

c. They cause a movement upward along the supply curve.

d. They cause a movement downward along the supply curve.

3. The equation of exchange may be expressed as

a. MV = nominal GDP.

b. M + V = P/Q.

c. V = nominal GDP/price index.

d. M/V = P/Q. e. MV = real GDP.

4. If the Fed is selling government securities, you would expect

a. the money stock to increase.

b. the money stock to decline.

c. no effect on the money stock.

d. no effect on the federal funds rate.

5. If the Fed wants to raise short-term interest rates, it should

a. act to increase money supply.

b. engage in open market purchases of government securities.

c. engage in open market sales of government securities.

d. lower reserve requirements.