1) Suppose the Bank of China permanently decreases its purchases of U.S. government bonds and, instead, holds more dollars on deposit at the Federal Reserve. Everything else held constant, open market ________ would be the appropriate monetary policy action for the Fed to take to offset the expected ________ in the monetary base in the United States.
A) purchase; decrease
B) purchase; increase
C) sale; decrease
D) sale; increase
The M2 Money Multiplier
2) The equation that represents M2 in the model of the money supply process is
A) M2 = C + D.
B) M2 = C + D + T MMF.
C) M2 = C + D T + MMF.
D) M2 = C + D + T + MMF.
3) In the model of the money supply process for M2, the relationship between checkable deposits and the M2 money supply is represented by
A) D = 1/1 + c + t + mm× M2.
B) D = (1 + c + t + mm) × M2.
C) M2 = 1r + c + t + mm× D.
D) M2 = r + c + t + mm*D.