BANKING GENERAL KNOWLEDGE
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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selling $250 million worth of Treasury bonds.
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raising the reserve requirement at member banks from 8% to 10%.
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increasing the interest rate paid by banks that want to borrow on a short-term basis from their Federal Reserve district bank.
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decreasing the federal funds rate.
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Detailed explanation-1: -Reducing government spending would tamp down on demand-fueled inflation, while at the same time restoring confidence in the ability of the federal government to pay down the debt and thus control inflation expectations.
Detailed explanation-2: -“Raising interest rates helps to reduce the overall level of demand and therefore, hopefully, reduces the upward pressure on prices, ” says Gapen. So why might this cause a recession? In the long run, businesses may respond to consumers purchasing fewer goods and services by reducing production, explains Gapen.
Detailed explanation-3: -For many years, inflation in the United States has run below the Federal Reserve’s 2 percent goal.
Detailed explanation-4: -Answer and Explanation: Option (A) is correct. At the time of recession, the Federal Reserve Bank will exercise the tools of monetary policy to use expansionary options. The Federal Reserve Bank will increase the supply of money by purchasing the securities in the open market operations.