# hw5-solutions.pdf - Homework #5, Due Tuesday, Nov 14. 1)...

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Homework #5, Due Tuesday, Nov 14.1)Monetary policy has several tools and the one used more frequently isA)open market operations.B)changing the discount rate.C)changing required reserve ratios.D)changing borrowing at commercial banks.Answer: A
2)Fed increased the discount rate from 6.25 percent to 6.5 percent on August 17, 2006. This increasemeans that
3)Which of the following increases the quantity of money?
4)You deposit \$4,000 in currency in your checking account. The bank holds 20 percent of all deposits asreserves. As a direct result of your deposit, your bank will create
5)You withdraw \$2,000 from your account. Your bank has a desired reserve ratio of 20 percent. Thistransaction, by itself, will directly reduceA)the quantity of money by \$1,600.B)deposits by \$1,600.C)the quantity of money by \$2,000.D)deposits by \$2,000.Answer: D
6)The opportunity cost of holding money is the

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