Look at the large card and try to recall what is on the other side. What are some basic monetary policy tools used by the Fed? What is the reserve-deposit ratio? a. increases; increases; decreases b. decreases; decreases; decreases c. increases; increases; increases d. increases; decreases; If the Federal Reserve buys bonds on the open market, then the money supply will: a) increase causing a decrease in investment spending shifting aggregate demand to the right. \text{Total Expenses}&\text{\hspace{12pt}?}&\text{\hspace{12pt}? Answer: D. 15. They will remain unchanged. It improves aggregate demand, thus increasing the country's GDP. C. increases the bond price and decreases the interes, When the Fed increases the money supply, a. people spend less because they have more money. \text{Net Income (Loss)}&\text{\hspace{12pt}?}&\text{\hspace{12pt}? The Fed has most likely reduced the, If the Fed wishes to increase the money supply it can, If the Fed wishes to decrease the money supply it can, The rate of interest banks charge each other for lending reserves is the, A change in the reserve requirement is the tool used least often by the Fed because it, can cause abrupt changes in the money supply, consists of seven members appointed by the President of the United States, who together act as the key decision-making entity for monetary policy, Bank reserves in excess of required reserves, Ceteris paribus, if the Fed raises the discount rate, then, the incentive to borrow reserves decreases. With everything else held constant, how will each of the following change as the result of the Fed's policy action (increase, decrease, or no change)? This is an example of which type of unemployment? When the Federal Reserve makes an open market purchase, the Fed: buys securities from banks and the public, which will decrease tha. b. the Federal Reserve buys bonds on the open market. Interest rates typically rise in a recession because the demand for money increases when real income falls. Suppose government spending increases. Inflation rate _____. C. excess reserves at commercial banks will increase. Expansionary fiscal policy is when a. the government lowers spending and raises taxes. To decrease the money supply the Fed can: Raise the reserve requirement, raise the discount rate, or sell bonds. d) Lowering the real interest rate. \text{Selling price (net of marketing and distribution costs) in France} & \text{\$300}\\ The new reserve requirement exemption amount and low reserve tranche will be effective for all depository institutions beginning January 1, 2022. d. the money supply is not likely to change. Discuss how an open market purchase of $50 million worth of bonds (or treasury bills) by the Fed would a, According to Orthodox monetary theory, when the FED buys a bond from the banking sector, this is an example of a) an open market purchase and contractionary monetary policy. Terms of Service. d. prices to remain constant. What fiscal policy tools are used to shift the aggregate demand curve? Which of the following is consistent with what Keynes believed? See our C. the price level in the economy will rise, thus i. D. decrease, Assume that the Federal Reserve establishes a minimum reserve requirement of 12.5%. If the Fed wishes to increase the money supply it can: The purchase and sale of government bonds by the Fed for the purpose of altering bank reserves is referred to as: If the Fed wants to increase bank reserves, it can: If the Fed wants to reduce bank reserves, it can: Raise the discount rate or sell bonds on the open market. c. first purchase, then sell, government securities. D. In open market operations, the Fed exchanges cash (money) for non-cash (bonds). c. the money supply is likely to increase. Let's say the Fed had raised interest rates by 1% before the family got a loan, and the interest rate offered by banks for a $300,000 home mortgage loan rose to 4.5%. d. the money supply and the pric, When the Fed increases the quantity of money, the: a. equilibrium interest rate falls b. demand for money curve shifts right c. supply of money curve shifts leftward. (a) money supply increases, investment increases, aggregate demand increases (b) money supply increases, the interest rate increases, If the Fed increases the money supply to bring down the federal funds rate: A. The difference between equilibrium output and full-employment output. Enter the effect of this open-market operation on Bank A's T-account, assuming that the proceeds from the p. If the Federal Reserve wants to decrease the money supply, it should: A. conduct open market purchases. The Fed decides that it wants to expand the money supply by $40 million. A perfectly competitive firm currently sells 30,000 cartons of eggs at $1.25 each. Facility location decisions are significant for an organization because:? B. buys treasury securities decreasing i, To stop rampant inflation, the Fed decides to sell $400 billion worth of government bonds and other securities to banks, thus decreasing the banks' reserves. The difference between price and average total cost multiplied by the quantity sold. Government bond operations. \textbf{ELEGANT LINENS}\\ copyright 2003-2023 Homework.Study.com. The buying and selling of government bonds by the Fed to control bank reserves and the money supply are operations known as a. Which of the following is likely to occur if people reduce their spending because they are worried about an economic downturn, ceteris paribus? All other trademarks and copyrights are the property of their respective owners. 16) a) encourage banks to provide loans by lowering the discount rate Explanations: During a slow economy, the Fed encourages growth in the economy and the money supply by reducing reserve requirements and lowering the discount rate. Also assume that banks do not hold excess reserves and there is no cash held by the public. b. sell government securities. In addition, the company had six partially completed units in its factory at year-end. While those goals were articulated in 1977, 2 the approach and tools used to implement those objectives have changed over time. b. means by which the Fed supplies the economy with currency. (Banks must hold more funds used for loans in reserve and there is a greater leakage as subsequent deposits will yield smaller excess reserves for banks receiving them.) D. open bonds operations. c. When the Fed decreases the interest rate it p, Which of the following options is correct? b. foreign countries only. $$ The Federal Reserve conducts open market operations when it wants to [{Blank}]? 3. B. increase the supply of bonds, decrease bond prices, and increase interest rates. b) increase. How would this affect the money supply? c. buys bonds from ban, The Federal Reserve's sale or purchase of government bonds is referred to as: a. open market operations b. credit rationing c. quantitative easing d. monetarism, If the Fed wants to increase the money supply through an open market operation, it will a. purchase government securities. d. raise the treasury bill rate. Ceteris paribus, what will occur if the Fed buys bonds through open-market operations? In the short run, if the Fed wants to raise the federal funds rate, it: (i) instructs the New York Fed to sell government securities in the open market. c. engage in open market sales of government securities. \text{General and Administrative Expense}&\text{\hspace{12pt}425,000}&\text{\hspace{12pt}425,000}\\ Corporate finance for the pre-industrial world began to emerge in the Italian city-states and the low countries of Europe from the 15th century.. Ceteris paribus, if the Fed raises the reserve requirement, then: e The lending capacity of the banking system decreases. &\textbf{past due}&\textbf{past due}&\textbf{past due}\\[5pt] When the Fed conducts open market operations, the Fed buys and sells government securities to: a. the private sector. Suppose Alan receives a check for $300 from a bank in Dallas, He deposits the check in his account at his Baltimore ban of the following is Alan's Baltimore bank likely to collect the $300 from? Q01 . Which of the following is NOT a basic monetary policy tool used by the Fed? The monetary base in the economy will increase. b. lowers inflation but raises unemploym, Assume the demand for money curve is stationary and the Fed increases the money supply. A. change the liquidity levels of banks. During the last recession (2008-09. An open market operation is ____?A. Increase the reserve requirement C. Buy government securities D. Decrease the discount rate, When the Fed successfully decreases the money supply, GDP options: a. increases because the resulting increase in the interest rate leads to a decrease in investment b. increases because the resul, If the Fed wants to raise the interest rate, in the short run in the money market, the Fed: a) decreases the quantity of money b) increases the quantity of money c) shifts the demand for money curve leftward d) shifts the demand for money curve rightward, The Federal Reserve is becoming more cautious about rising inflationary pressure. $$ c. Purchase government bonds on the open market. a. decrease, downward b. decrease, upward c. increase, downw, When the Federal Reserve engages in a restrictive monetary policy, the price of marketable government bonds will ___, assuming all other factors influencing the bond market remain the same. Raise the reserve requirement, increase the discount rate, or . A perfectly competitive firm is a price taker because: It has no control over the market price of its product. The deposit-creation potential of the banking system is: Suppose the entire banking system has $10,000 in excess reserves and a required reserve ratio of 20 percent. The Board of Governors has ___ members,and they are appointed for ___ year terms. b) an open market sale and expansionary monetary policy. Explain. a. decreases; falls b. decreases; rises c. does not change; falls d. increases; rises e. increases; falls, At 3% unemployment which is likely to happen, the Federal Reserve should: A. sell bonds increasing the price of bonds and driving up the interest rates. are in the same box the next time you log in. During the year, the company started and completed 45 motor homes at a cost of $\$ 55,000$ per unit. The following information is available: Suppose the United States and French tax authorities only allow transfer prices that are between the full manufacturing cost per unit of $175 and a market price of$250, based on comparable imports into France. d) decreases, so the money supply decreases. Which of the following is likely to cause a leftward shift in the aggregate supply curve, ceteris paribus? b. raises the cost of borrowing from the Fed, discouraging banks from making loans, When the Fed conducts open-market purchases, a. it buys Treasury securities, which increases the money supply. They will increase. Raise reserve requirements 3. b) means by which the Fed acts as the government's banker. If a bank does not have enough reserves, it can. If the Fed decides to engage in an open market operation to increase the money supply, what will it do? c) not change. Which of the following is likely to occur if OPEC increases the amount of oil it supplies and domestic energy prices fall, ceteris paribus? a-Ceteris paribus, an increase in the interest rate would lead to a fall in investment due to an inward shift of the investment line. d. the U.S. Treasury. D. Decrease the supply of money. Martin takes $150 out of his checking account and hides it in his house as cash. - By buying and selling bonds through open-market operations - By buying and selling stocks - By setting the interes, Suppose the Fed decided to purchase $100 billion worth of government securities in the open market, directly deposited into the banking system. Suppose the banks in the Federal Reserve System have $400 million in transactions accounts and the reserve requirement is 0.10. a. b. the Federal Reserve buys bonds on the open market. If the Fed decreases the money supply, GDP ________. a. increase the supply of money by buying bonds b. increase the supply of money by selling bonds c. increase the demand for money by buying bonds d. increase the demand for mo, An increase in the money supply will cause interest rates to: a. rise b. fall c. remain unchanged. C. decrease interest rates. C. the Fed is seeking, All else equal, if the Federal Reserve decreases the money supply, interest rates will _ and the dollar will _ against other currencies. Cause the money supply to increase, c. Not affect the money supply, d. Decrease the money multiplier. It involves the direct exchange of one good or service for another. Suppose the Federal Reserve buys government securities from the non-bank public. We develop a model of price formation in a dealership market where monitoring of the information flow requires costly effort. When the Federal Reserve makes an open market purchase, the Fed: If the federal reserve injects $3,000 into the banking system through open market operations, did the federal reserve buy or sell government bonds? c. Increase the interest rate paid on ban, Which of the following describes what the Federal Reserve would do to pursue an expansionary monetary policy? When the Fed raises the reserve requirement, it's executing contractionary policy. C. influence the federal funds rate. Buy Treasury bonds, bills, or notes on the bond market. If the Fed sells $29 million worth of government securities in an open market operation, then the money supply can: A. increase by $2.9 million. Suppose the Fed conducts $10 million open market purchase from Bank A. Q02 . When the Federal Reserve increases the discount-rate increases the discount rate as a part of a contractionary monetary policy, there is: A. Would the effect on aggregate demand be larger if the Federal Reserve held the money supply constant in response or if the Fed were committed to maintaining a fixed interest rate? Also assume the Federal Reserve conducts an Open Market Operations purchase of U.S. Treasury securities in the amoun, Assume that the Federal Reserve establishes a minimum reserve requirement of 12 %. Now suppose the Fed conducts an open market purchase of government bonds equal to $1, Fiscal policy is conducted by: a. D. all of the above. Is this an example of fiscal policy or monetary policy? b. the price level increases. By the end of the year, over $40 billion of wealth had vanished. Assuming this, how is the Fed likely to respond to fiscal stimulus if the economy is nearing full employment? Which of the following functions does the Fed perform? If the Federal Reserve increases the nominal supply of money, all else equal: a. the demand for money increases. (A) How will M1 be affected initially? If the Fed is using open-market operations, will it, Key Concept: Open market operations When the Fed buys government securities, it a. D. the buying and selling of stocks i, Suppose again that Third National Bank has reserves of $20,000 and check able deposits of $100,000. Michael Haines The use of money and credit controls to change macroeconomic activity is known as: Monetary policy. B. expansionary monetary policy by selling Treasury securities. b. decrease the money supply and decrease aggregate demand. 1. A. b. increase causing an increase in investment spending shifting aggregate demand, When the Federal Reserve increases the money supply, it aggregate demand and moves the economy along the Phillips curve to a point with inflation and unemployment. Money demand c. Investment spending d. Aggregate demand e. The equilibrium level of national income, When the expected inflation rate falls, the real cost of borrowing ______ and bond supply ______, everything else held constant. Ceteris paribus, if the Fed reduces the reserve requirement ratio, then: A) The lending capacity of the banking system increases. If market interest rates rise, the selling price of existing bonds in the market will, ceteris paribus, . Acting as fiscal agents for the Federal government. A. expands, higher, higher B. expands, higher, lower C. expands, lower, higher D. contracts, In the market for money, when the demand for funds increases, the interest rate _______ and the amount of money borrowed _______ . The Federal Open Market Committee is responsible for: a) reducing the Fed's reliance on open market operations. b. increase the supply of bonds, thus driving down the interest rate. The text describes the theoretical developments of the assignment rules regarding fiscal and monetary policies and the respective roles in macroeconomics stabilisation. 26. d. sells U.S. Treasury bills to the federal government. C. Controlling the supply of money. Aggregate demand will decrease or shift to the left. An industry in which many firms produce similar products but each firm has significant brand loyalty is known as: Which of the following is characteristic of a perfectly competitive market? The deposit-creation potential of the banking system is: A reduction in the money supply should shift the aggregate: Monetary policy involves the use of money and credit controls to: What not a basic monetary policy tool used by the Fed? What cannot be used to shift aggregate demand? The fixed monthly cost is $21,000, and the variable cost. Use the model of aggregate demand and aggregate supply to illustrate the impact of this change in the interest rate on output and the price level in the short run. B. decisions by the Fed to increase or decrease the money multiplier. a. Raises the cost of borrowing from the Fed, discouraging banks from ma, If the Federal Reserve System buys government securities from commercial banks and the public: A. commercial bank reserves will decline B. commercial bank reserves will be unaffected C. it will be easier to obtain loans at commercial banks D. the money su, Suppose that the Fed purchases from bank A some bonds in the open market and that, before the sale of bonds, bank A had no excess reserves. To see how well you know the information, try the Quiz or Test activity. d. The Federal Reserve sells bonds on the open marke, If the Fed purchases government securities on the open market, the quantity of money and the nominal interest rate. c. an increase in the demand for bonds and a rise in bond prices. As a result, the money supply will: a. increase by $1 billion. Name the three tools of monetary policy that the Federal Reserve System can do to combat unemployment/recession. The sale of bonds to the Fed by the public C. Increases in banks' excess reserves D. Increases in. An open market operation decreases the money supply when the Federal Reserve a. sells bonds to banks, which increases bank reserves. This problem has been solved! . Name the three tools of monetary policy that the Federal Reserve System can do to combat inflation. An easing of monetary policy interest rates, which the demand for a currency and the fundamental value of the exchange rate. At what price per share did Wave Water issue common stock during 2012? b. The Treasury buys bonds in the open market c. The Fed reduces reserve requirements d. The Treasury sells b. \text{Variable manufacturing cost per chainsaw} & \text{\$100}\\ Each bond is worth $1000 (so the Fed has bought $3000 worth of bonds). Your email address is only used to allow you to reset your password. If the Fed sells government bonds, this will: A. If not, how will the Central Bank control inflation? \text{Total uncollectible? \textbf{Year Ended December 31, 2019}\\ 2) If, If the Fed increases the supply of money in the market, bond prices will and interest rates will. d. decrease the discount rate. It creates money, it creates a transactions-account balance for the borrower, and the money supply increases. In the short run, the quantity of money demanded [{Blank}] and the nominal interest rate [{Blank}]. The total change in deposits (with no drains) would be$12,857 million = (1/0.07) $900 million If the Fed wishes to stimulate the economy, it could I. buy U.S. government securities.II. c. first purchase, then sell, government secur, If the Fed wants to decrease the money supply by $5,000, the Fed will use open market operations to _____ worth of U.S. government bonds. Consider an open market purchase by the Fed of $16 billion of Treasury bonds. D. All of the above. \text{Selling expenses} \ldots & 500,000 a) 0.25 b) 0, Suppose the reserve requirement for checking deposits is 10 percent and banks do not hold any excess reserves. A. then the Fed. c) borrow less from the Fed and, If Federal Reserve decides to decrease the money supply in the United States, what will happen to: 1) the interest rate 2) the level of investment spending in America 3) the level of GDP 4) the level of money demand 3) the U.S interest rate 4) the level o. Our experts can answer your tough homework and study questions. b) borrow more from the Fed and lend less to the public. If a market basket of goods cost $100 in the base year and $110 in a later year, then average prices have increased by: Keynes and classical economists disagree about whether: Government intervention should be used to correct business cycles. B. federal bond operations. The difference in potential money creation when the Bank of Canada buys government securities from the chartered banks rather than from the public is due to the fact that a. excess reserves are larger when the Bank of Canada buys government securities from the chartered banks. Suppose a bank has $50,000 in transactions accounts and a minimum reserve requirement of 10 percent. c. Determine whether each of the following, Open market operations are the a. buying and selling of Federal Reserve Notes in the open market. c. means by which the Fed acts as the government's banker. The nominal interest rates falls. b. sell government securities. Sell government securities Ceteris paribus, if the Fed reduces the reserve requirement, then the lending capacity of the banking system increases Ceteris paribus, if the Fed reduces the discount rate, then the incentive to borrow funds increases b. The people who sold these bonds keep all their money in checking accounts. Our experts can answer your tough homework and study questions. When you've placed seven or more cards in the Don't know box, click "retry" to try those cards again. b. it will be easier to obtain loans at commercial banks. Its marginal revenue curve is below its demand curve. Change in Excess Reserve = -100000000. C. $120,000 in checkable-deposit liabilities and $32,000 in reserves. If the Federal Reserve increases the rate of money growth and maintains it at the new higher rate, eventually expected inflation will and the short-run Phillips curve will shift . a. decrease, downward b. decrease. C. Increase the supply of money. a. Ceteris paribus, if the Fed reduces the reserve requirement, then, the lending capacity of the banking system increases, Ceteris paribus, if the Fed reduces the discount rate, then. The result will be a in the money market and a in the bond market, which will push bond prices and interest rates will unti, Starting from a monetary equilibrium condition, an increase in the money supply A. increases the bond price and increases the interest rate. Working Paper No. A change in government spending, a change in taxes, and monetary policy. d. lend more reserves to commercial banks. The paper argues that the process of financialization has profoundly changed how capitalist economies operate. What effect will this open market operation have on demand deposits and M1? That reduces liquidity and slows economic activity. Then the bank has excess reserves of: Suppose a bank has $1,000,000 in deposits, a minimum reserve requirement of 15 percent, and bank reserves of $170,000. Suppose that the Fed purchases from bank B some bonds in the open market and that, before the sale of bonds, bank B had no excess reserves. The purchase and sale of government bonds by the Fed for the purpose of altering bank reserves is referred to as: Members of the Federal Reserve Board of Governors are appointed for one fourteen-year term so that they: Make their decisions based on economic, rather than political, considerations. Officials indicated an aggressive path ahead, with rate rises coming at each of the . Key Points. Suppose that banks are able to issue private IOU's, such that individuals deposit goods with the bank and the bank can promise a return on the deposit. Required reserves decrease. B. decreases the money supply, which leads to increased interest rates and a rise in investment spending. Ceteris paribus, if the Fed raised the required reserve ratio: Question: Ceteris paribus, if the Fed raised the required reserve ratio: This problem has been solved! a. D. The collectio. All rights reserved. receivables. Any import duty paid to the French authorities is a deductible expense for calculating French income taxes. d. The money supply should increase when _ a. If the Federal Reserve increases the discount rate: a. the federal funds rate must decrease. b) Lowering the nominal interest rate. 41. An increase in the money supply and an increase in the int. If the banking system has a required reserve ratio of 20 percent, then the money multiplier is: It is more likely to occur if people lose faith in a nation's currency. Then, ceteris paribus, bank reserves _____ (increase, decrease, or do not change), currency in circulation _____ (increases, decreases, or does not change), and thus the monetary base will _____ (decrease or increase). ceteris paribus, if the fed raises the reserve requirement, then: Posted on . B. The Fed decides that it wants to expand the money supply by $40 million. Decrease the price it asks for the bonds. When the Federal Reserve sells bonds as a part of a contractionary monetary policy, there is: A. Suppose the banks in the Federal Reserve System have $100 million in transactions accounts and the reserve requirement is 0.10. \text{U.S. income tax rate on the U.S. division's operating income} & \text{40\\\%}\\ Decrease the demand for money. b. a. Suppose the banks in the Federal Reserve System have $400 million in transactions accounts and the reserve requirement is 0.10. b. engage in open market purchases of government securities. Assuming the economy is in the upward sloping portion of the eclectic aggregate supply curve, what should happen to the price level and output as a result of the Fed's action, ceteris paribus? Banks must hold more funds used for loans in reserve. b. money demand increases and the price level decreases. International Financial Advisor. c. an increase in the quantity of money demanded. Suppose commercial banks use excess reserves to buy government bonds from the public. According to macroeconomists, a goal for the economy is a: When the unemployment rate falls to the full-employment level: There is increased concern about inflation. Hence C is the correct option. Tax on amount over $3,000 :3 percent. The Baltimore banks regional federal reserve bank. Bank A with total deposits of $100 million isfully loaned up. a. decrease b. increase c. not change, If the economy experiences an expansionary gap and the Fed sells US government securities in the open market, then ______. Increase the demand for money. To decrease the money supply, the Fed can, raise the reserve requirement, raise the discount rate, or sell bonds. \text{Accounts receivable amount}&\text{\$\hspace{1pt}263,000}&\text{\$\hspace{1pt}134,200}&\text{\$\hspace{1pt}64,200}\\ Compute the following for the current year: When the economy overheats, the government sometimes cools it down with higher taxes, spending reductions, and less money. 3 . b. buys or sells foreign currency. Instead of paying her for this service,the neighbor washes the professor's car. c. Decrease interest rates. III. The result is that people _____. Cost of finished goods manufactured. Which of the following lends reserves to private banks? It also raises the reserve ratio. An increase in the money supply, When the Federal Reserve increases the discount rate as a part of a contractionary monetary policy, there is: a) a decrease in the money supply and a decrease in the interest rate. }\\ b. buys bonds from banks, which increases bank reserves. Increase government spending. This is an example of: Money is functioning as a medium of exchange when you: Buy lunch at a fast food restaurant for yourself and your friend. b. All persons over age 16 who are either working for pay or actively seeking paid employment refers to: Who is an example of a part of the labor force? C. decreases, 1. The nominal interest rates rises. Holding the deposits or reserves of commercial banks. The Fed lowers the federal funds rate. This causes excess reserves to, the money supply to, and the money multiplier to. A. buy $25,000 B. sell $25,000 C. sell $5,000 D. buy $1,000 E. sell $1,000, In times of economic downturn, the Federal Reserve will engage in ___ monetary policy by ___ bonds. If the Fed sells bonds: A.aggregate demand will increase. Demand; marginal revenue and marginal cost. Aggregate supply will increase or shift to the right. &\textbf{Original Categories}&\textbf{Categories Change}\\[5pt] d) All of the above. If the Federal Reserve increases the rate of money growth and maintains it at the new higher rate, eventually expected inflation will and the short-run Phillips curve will shift.
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