c) buying and selling of government securities by the Treasury. The financial sector has grown relative to the real economy and become more fragile. To see how well you know the information, try the Quiz or Test activity. B. Ceteris paribus, if the Fed raises the reserve requirement, then: e The lending capacity of the banking system decreases. \end{array} If you forget it there is no way for StudyStack The Fed decides that it wants to expand the money supply by $40 million. The Fed is most likely to do this by: A. purchasing government bonds from the public B. selling government bonds to the public C. selling government bonds to the treasury D. purchasi, Which of the following tends to reduce the effect of the expansionary open market operation on the money supply? In addition, the company had six partially completed units in its factory at year-end. \text{Manufacturing overhead} \ldots & 1,200,000 \\ Increase government spending. It also raises the reserve ratio. Cost of finished goods manufactured. lower reserve requirements.I and III onlyCurrently the Fed sets monetary policy by targetingthe Fed funds rate From October 1983 . b. decrease, upward. C. $120,000 in checkable-deposit liabilities and $32,000 in reserves. \begin{array}{lcc} B. excess reserves at commercial banks will decrease. If the price of computers falls during a period when the average price level remains constant, which of the following has occurred? Now suppose the Fed lowers. Which of the following is NOT a basic monetary policy tool used by the Fed? B. influence the discount rate. receivables. c. increase, down. B. purchases government bonds to decrease the money supply. Get access to this video and our entire Q&A library, How the Federal Reserve Changes the Money Supply and Affects Interest Rates. An increase in the reserve ratio: a. increases the money multiplier. \text{Percent uncollectible}&\text{8\\\%}&\text{17\\\%}&\text{31\\\%}\\ B. Expansionary fiscal policy is when a. the government lowers spending and raises taxes. c. When the Fed decreases the interest rate it p; The key decision maker for general Federal Reserve policy is the: Free . Conduct open market purchases. (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. B. taxes. Suppose the Federal Reserve purchases mortgage-backed securities (MBS). Our experts can answer your tough homework and study questions. c) overseeing the buying and selling of government securities in the open market. b. the interest rate increases c. the Federal Reserve purchases bonds. Fill in either rise/fall or increase/decrease. Increase / Increase c. Decrease / Decrease d. Decrease / Increase e. Decrease / No change, When the Fed implements a contractionary monetary policy this means that: (a) the price of T-Bills rises (b) the interest rate paid on T-Bills falls (c) the Federal Funds Rate increases (d) none o, 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 ______. Change in Excess Reserve = -100000000. 2. C. purchases government bonds to increa, Within the Federal Reserve, the organizational body that is responsible for conducting open market operations (i.e., the buying and selling of government securities) is the: a) FOMC, b) Board of Governors, c) Board of Directors, d) Federal Reserve Bank o, Assume that the required reserve ratio is 10%; banks hold no excess reserves, and the public holds all money in the form of currency. B. decreases the money supply, which leads to increased interest rates and a rise in investment spending. 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. D. Transaction demand for, To ease monetary policy to fight a recession, the Federal Reserve would ____. C. influence the federal funds rate. Instead of paying her for this service,the neighbor washes the professor's car. 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. In a graph of the aggregate demand curve, an increase in investment by businesses is represented by a: Ceteris paribus, which of the following changes in the aggregate demand curve best characterizes a cutback in exports? Suppose government spending increases. C. contractionary monetary policy by, An open market sale by the Fed A. increases the money supply, which leads to increased interest rates and a fall in investment spending. The Fed approved a 0.25 percentage point rate hike, the first increase since December 2018. Money is functioning as a standard of value if you: Compare the prices of running shoes online to those in a sporting goods store. 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. increases, increase, increase b. increases, increase, decrease c. decreases, increase, decrease d. increases, decrease, increa, If the Federal Reserve increases the discount rate, how are interest rates and real GDP affected? 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. b. increase the money supply. $140,000 in checkable-deposit liabilities and $46,000 in reserves. The text describes the theoretical developments of the assignment rules regarding fiscal and monetary policies and the respective roles in macroeconomics stabilisation. Cause the money supply to increase, c. Not affect the money supply, d. Decrease the money multiplier. is the rate of interest charged by the Fed when it lends money to private banks, If a private bank lends money to another bank, the interest rate that is charged for the loan is the, Suppose the Fed decreases interest rates by half of a percent. 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. 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. The U.S. Treasury c. The U.S. Mint d. The federal government And involves: a. Quantitative easing b. The Federal Reserve calculates and provides reserve balance requirements before the start of each maintenance period to depository institutions via the Reserves Central--Reserve Account Administration, which is available on the Federal Reserve Bank Services website. C. increase by $290 million. c. Decrease interest rates. a. 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. rate of interest increases.. d) Lowering the real interest rate. C) Total deposits decrease. $$ Find the taxable wages. If you knew the answer, click the green Know box. FROM THE STUDY SET Assume the required reserve ratio is 10 percent and the FOMC orders an open market sale of $50 million in government securities to banks. Biagio Bossone. a) Describe what initially happens to the reserves of bank B. b) If bank B does not want to hold excess reserves, w, Suppose that the Fed undertakes an open market purchase of $25,000,000 worth of securities from a bank. If the firm wants to sell one more carton of eggs, the firm: A flat or horizontal demand curve for a firm indicates that: If a perfectly competitive firm wanted to maximize its total revenues, it would produce: As much output as it is capable of producing. b. the Federal Reserve buys bonds on the open market. When the Federal Reserve System buys government securities on the open market: A. the money supply will decrease. b. the same thing as the long-term growth rate of the money supply. }\\ Why does an open market sale of Treasury securities by the federal Reser, Suppose the Federal Reserve wanted to increase the money supply: it could a. &\textbf{past due}&\textbf{past due}&\textbf{past due}\\[5pt] If the Federal Reserve System buys government securities from commercial banks and the public: a. the money supply will contract. C.banks' reserves will be reduced. C. increase the supply of bonds, If the money supply increases, what happens in the money market (assuming money demand is downward sloping)? The equilibrium price level and equilibrium output should both increase. B. buy bonds lowering the price of bonds and driving up the interest rates. 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). Price charged is always less than marginal revenue. They will remain unchanged. Hence C is the correct option. a) decrease, downward b) decrease, upward c) inc. b) means by which the Fed acts as the government's banker. Demand; marginal revenue and marginal cost. Suppose the Federal Reserve conducts an open market purchase of $150 million government securities from the non-bank public. b) borrow reserves from the public. a. contractionary; buying b. expansionary; buying c. expansionary; selling d. contractionary; selling, Suppose the Federal Reserve conducts an open market purchase of $10 million worth of securities from a bank. b. the money supply is likely to decrease. At what price per share did Wave Water issue common stock during 2012? The price level to decrease c. Unemployment to decrease d. Investment to decrease. If the Federal Reserve commits to money supply growth of 2% per year and then the economy enters a recession, it would be time consistent to raise the growth rate to 5%. . a) Describe what initially happens to the reserves of bank A, Open market operations refer to A. the buying and selling of government bonds by the Fed. Causes an increase in the federal funds rate, c. Increases reserve holdings of the commercial banks, d. Lowers the cost of borrowing from the Fed, e. Leads to an increase in the interbank, According to the Taylor rule, the Federal Reserve lowers the real interest rate as the output gap ____ or the inflation rate ______. The monetary base in the economy will increase. Which of the following is NOT a possible source of last-minute reserves for a private bank? c. the Federal Reserve System. The nominal interest rates rises. When the sellers deposit their checks in their bank accounts, their reserves will increase due to the deposits made. 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. Open market operations c. Printing mo. The fixed monthly cost is $21,000, and the variable cost. \end{array} a. decrease, downward. the process of selling Fed-issued IOUs between banks. . 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)? Inflation rate _____. Its policymakers are welcoming the recent slowdown in price increases, and the disinflation trend gives . B) The lending capacity of the banking system decreases. C) buying and selling of government s. In carrying out open market operations, the Federal Reserve usually buys and sells U.S. Treasury securities. Suppose commercial banks use excess reserves to buy government bonds from the public. Suppose the Federal Reserve buys 100 mortgage-backed securities in the open market. Use these flashcards to help memorize information. \begin{array}{c} A. The creation of a Federal Reserve System was recommended by. Generally, when the Federal Reserve lowers interest rates, investment spending [{Blank}] and GDP [{Blank}]. c) an open market sale. An increase in the money supply and a decrease in the interest rate. A. change the liquidity levels of banks. c) not change. It forces them to modify their procedures. e. increase inflation. (a) Show how t. When the central bank sells government bonds does it do so by applying monetary policies such as expansionary and deflationary policies or do they sell them to specific buyers? During the last recession (2008-09. c. the money supply and the price level would increase. Determine whether each of the following, Open market operations are the a. buying and selling of Federal Reserve Notes in the open market. Transcribed Image Text: Question Now we introduce banks that will act as liquidity providers in the economy. Makers, but perfectly competitive firms are price takers. Suppose the bond market and the money market both start out in equilibrium and then the Federal Reserve increases the money supply. Should the Fed increase or decrease the money supply? a. increase the supply of bonds, thus driving up the interest rate. Calculate after-tax operating income earned by United States and French divisions from transferring 200,000 chainsaws (a) at full manufacturing cost per unit and (b) a market price of comparable imports. If the Federal Reserve decreases money supply, then a) The money supply curve will shift up and interest rates will increase b) The money supply curve will shift up and interest rates will decrease. A combination of flexible rules and limited discretion. To decrease the money supply, the Fed can, raise the reserve requirement, raise the discount rate, or sell bonds. Answer the question based on the following balance sheet for the First National Bank. Monetary policy refers to the central bank's actions to the control of money supply in the economy. Cause a reduction in the dem. If the Open-Market Committee of the Federal Reserve sells securities, this action tends to: a. decrease the money supply. D. In open market operations, the Fed exchanges cash (money) for non-cash (bonds). d. a decrease in the quantity de. When you need a break, try one of the other activities listed below the flashcards like Matching, Snowman, or Hungry Bug. Its marginal revenue curve is below its demand curve. Decrease by $100, Suppose the Federal Reserve buys 3 treasury bonds from the public. d) borrow reserves from the Federal Reserve. Raise reserve requirements 3. 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 ______. Answer: Answer: B. c. the money supply is likely to increase. \begin{array}{l r} If the Fed buys more bonds from the public, then the money supply will: Increase and the aggregate demand curve will shift to the right. Within the Federal Reserve, the organizational body that is responsible for conducting open market operations (i.e., the buying and selling of government securities) is the (a) FOMC (b) Board of Governors (c) Board of Directors (d) Federal Reserve Ban, Which of the following is the basic economic policy function of the Federal Reserve Banks? While those goals were articulated in 1977, 2 the approach and tools used to implement those objectives have changed over time. Excess reserves increase. 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. a. During the year, the company started and completed 45 motor homes at a cost of $\$ 55,000$ per unit. Ceteris paribus, if the Fed reduces the reserve requirement ratio, then: A) The lending capacity of the banking system increases. copyright 2003-2023 Homework.Study.com. b) borrow more from the Fed and lend less to the public. Buying securities in open market operations is a tool used by the Federal Reserve to increase the money supply in the economy, thus encouraging economic growth. Raise the reserve requirement, raise the discount rate or sell bonds Ceteris paribus, if the Fed reduces the discount rate, then: The incentive to borrow funds increases The use of money and credit controls to change macroeconomic activity is known as: Monetary policy In order to decrease the money supply, the Fed can. What is Wave Waters debt ratio on this date? d. decrease the discount rate. b. decrease the money supply and decrease aggregate demand. 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. If the Federal Reserve increases the discount rate: a. the federal funds rate must decrease. c. Of these, 43 were sold for $\$ 105,000$ each and two remain in finished goods inventory. (ii) instructs the New York Fed to sell government securities in the foreign exchange market. 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. In order to increase sales by one item per month, the monopolist must lower the price of its software by $1 to $49. Fill in either rise/fall or increase/decrease. Note The higher the reserve requirement, the less profit a bank makes with its money. Which of the following is likely to cause a leftward shift in the aggregate supply curve, ceteris paribus? What is meant by open market operations? A stock person who is laid off by a department store because retail sales across the country have decreased is _______ unemployed. Make sure you say increase or decrease/buy or sell. If the Fed sells bonds: A.aggregate demand will increase. Explain. Decrease the price it asks for the bonds. Could the Federal Reserve continue to carry out open market operations? If total reserves for a bank are $10,000, excess reserves are zero, and demand deposits are $100,000, then the money multiplier must be: If total reserves for a bank are $150,000, excess reserves are zero, and demand deposits are $1,000,000, then the money multiplier must be: Suppose the entire banking system has $10 million in excess reserves and a required reserve ratio of 5 percent. It is considered to be less efficient for an economy than the use of money. Increase the demand for money. The aggregate demand curve is downward sloping because, ceteris paribus: People are willing and able to buy more goods and services at lower average prices. If the required reserve ratio is 10 percent, what is the resulting change in checkable deposits (or the money supply) if we assume no cash leakages and banks hold zero excess res. For the federal deficit to be lowered, a) the federal gov't must decrease its spending and increase net exports. Federal Reserve purchases of government bonds ______________ total reserves and _________________ the money supply. Savings accounts and certificates of deposit are called. C. treasury bond operations. 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? Facility location decisions are significant for an organization because:? If the Federal Reserve increases the money supply, ceteris paribus, the: Money supply is defined as all the currency and other liquid instruments held by banks/individuals in a country's economy in a given time. Fiscal policy should be used to shift the aggregate demand curve. a. The required reserve ratio is 16%. c) decreases government spending and/or raises taxes. \end{matrix} eachus, which of the following will occur if the Fed buys bonds through open-market operations? a- raises and reduces b- lowers and increases c- raises and increases d- lowers and reduces, When the Federal Reserve uses contractionary monetary policy to reduce inflation, it: A. sells treasury securities increasing interest rates, leading to a stronger dollar that lowers net exports in an open economy. a. increases; rises b. does not change; falls c. decreases; rises d. decreases; falls e. increases; falls. Above equilibrium, this results in excess supply. \text{Total per category}&\text{?}&\text{?}&\text{? The number of deposit dollars the banking system can create from $1 of excess reserves. What is the reserve-deposit ratio? Explore how the Federal Reserve uses monetary policies to control the money supply and affect interest rates in an effort to prevent another depression from occuring. c. has an expansionary effect on the money supply. a. c. an increase in the demand for bonds and a rise in bond prices. Officials indicated an aggressive path ahead, with rate rises coming at each of the . Martin takes $150 out of his checking account and hides it in his house as cash. c) decreases, so the money supply increases. What can be used to shift aggregate demand? b. buys bonds from banks, which increases bank reserves. D) Required reserves decrease. C. increase by $50 million. You would need to create a new account. a. increase, increase, sell b. increase, increase, buy c. decrease, decrease, buy d. decrease, If the Fed is following policies to reduce inflation, it is most likely to be: a. lowering interest rates b. raising the money supply c. lowering the money supply d. both lowering interest rates and, When the interest rate falls in the money market, the quantity of money demanded ______ and the quantity of money supplied _______. It transfers money from spenders to savers. Which of the following indicates the appropriate change in the U.S. economy after government intervention? \text{Expenses:}\\ III. a. b. will cause banks to make more loans. See Answer Ceteris paribus, if the Fed raised the required reserve ratio: Expert Answer The French import duty is charged on the price at which the product is transferred into France. Generally, the central bank. a) 0.25 b) 0, Suppose the reserve requirement for checking deposits is 10 percent and banks do not hold any excess reserves. If the Fed sells $1 million of government bonds, what is the effect on the economy s reserves and money supply? Key Points. 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. U.S. goods are less expensive for Americans so they buy fewer imports and more domestic goods. If the required reserve ratio is nine percent, what is the resulting change in checkable deposits (or the money supply) if we assume there are no. The Board of Governors has___ members, and they are appointed for ___year terms. B. decisions by the Fed to increase or decrease the money multiplier. C. sell bonds lowering the, If The Fed decides to buy bonds & securities in the open market, it will likely: a. increase the money supply and decrease aggregate demand. The Federal Reserve can decrease the money supply by: A. buying gold reserves on the open market B. buying foreign currency in the exchange market C. buying government bonds on the open market D. selling bonds on the open market E. selling financial capit. 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. d. an increase in the supply of bonds and a fal, When there is an excess supply of money: A. the Fed will decrease the money supply. 3. D. all of the above. U.S.incometaxrateontheU.S.divisionsoperatingincomeFrenchincometaxrateontheFrenchdivisionsoperatingincomeFrenchimportdutyVariablemanufacturingcostperchainsawFullmanufacturingcostperchainsawSellingprice(netofmarketinganddistributioncosts)inFrance40%45%20%$100$175$300.
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