Posted: September 15th, 2015

Fed's main policy tools

Are credit cards or debit cards money? Explain your answer.

Assume that the bank holds no excess reserves and that the required reserve ratio equals 10% of deposits.
If a customer deposits $5,000, what would be the total increase in checking account balances throughout all banks? Explain the process by which the banking system creates money.

In your own words, list the Fed’s main policy tools and briefly explain each one.

TRUE or FALSE. “When the Fed makes an open market purchase of government securities, the quantity of money will eventually decrease by a fraction of the initial change in the monetary base.” Is the previous statement correct or incorrect? Explain your answer.

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