Tackle the Test: Free-Response Questions

1. Question

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   Rubric for FRQ 1 (9 points)

   1 point: The discount rate

   1 point: The reserve requirement

   1 point: Open-market operations

   1 point: Decrease the discount rate

   1 point: A lower discount rate makes it cheaper to borrow from the Fed so the money supply increases.

   1 point: Decrease the reserve requirement

   1 point: A lower reserve requirement allows banks to loan more, increasing the money supply.

   1 point: Buy U.S. Treasury bills

   1 point: When the Fed buys U.S. Treasury bills, banks’ excess reserves increase. When lent out, these excess reserves increase the money supply with the assistance of the money multiplier.

2. Question

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