-Which of the following statements concerning the movement from S to S' in this figure is FALSE?
A) Both excess reserves and the interest rate have fallen.
B) The Federal Reserve is following an easy money policy.
C) This situation could be the result of a decrease in the reserve requirement.
D) This situation could be the result of the Fed's purchase of government securities.

Question

-Which of the following statements concerning the movement from S to S' in this figure is FALSE?
A) Both excess reserves and the interest rate have fallen. 
B) The Federal Reserve is following an easy money policy. 
C) This situation could be the result of a decrease in the reserve requirement. 
D) This situation could be the result of the Fed's purchase of government securities.

Quizplus · Accepted Answer

The movement from S to S' in a context likely referring to the supply of money or similar financial metric implies an increase in the supply (shift rightward). This typically results from actions that add liquidity to the banking system, such as lowering reserve requirements or the Fed purchasing government securities, both of which are consistent with an easy money policy. These actions would generally lead to a decrease in interest rates due to the increased availability of funds. However, the statement that both excess reserves and the interest rate have fallen is contradictory in this context; while the interest rate would fall, excess reserves in the banking system would actually increase as a result of such policy actions, making A the false statement.

-Which of the Following Statements Concerning the Movement from S