Which of the following central bank policies will lower the money supply?
a. Lowering the reserve ratio.
b. Lowering the discount rate.
c. Selling foreign currency in the foreign exchange market.
d. Buying government securities.
e. All of the above.
Question 2
Assume that the central bank purchases government securities in the open market. If the nation has highly mobile international capital markets and a flexible exchange rate system, what happens to the quantity of real loanable funds per time period and current international transactions in the context of the Three-Sector-Model?
a. The quantity of real loanable funds per time period rises, and current international transactions become more negative (or less positive).
b. The quantity of real loanable funds per time period falls, and current international transactions become more negative (or less positive).
c. There is not enough information to determine what happens to these two macroeconomic variables.
d. The quantity of real loanable funds per time period and current international transactions remain the same.
e. The quantity of real loanable funds per time period rises, and current international transactions become more positive (or less negative).
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