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1) Ceteris paribus, if bond prices rise, then A) the Federal reserve must be pursuing contractionary monetary policy. 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. If the Fed wants to increase the money supply through an open market operation, it will a. purchase government securities. The immediate result of this transaction is that M1: If Edgar takes $100 out of his savings account and deposits it into his checking account, the immediate result of this transaction is that M1: What does not occur when a bank makes a loan? It is considered to be less efficient for an economy than the use of money. d. Conduct open market sales. c) Increasing the money supply. Assume the required reserve ratio is 10 percent and the FOMC orders an open market sale of $50 million in government securities to banks. B. decrease by $200 million. c. the government increases spending and lowers taxes. Suppose the Federal Reserve buys government securities from the nonbank public. 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 %. The velocity of money is a. the rate at which the Fed puts money into the economy. What effect will this open market operation have on demand deposits and M1? Suppose the Federal Reserve buys government securities from commercial 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)? Explain your reasoning. An office worker who loses her job because she does not have the necessary computer skills is, ceteris paribus: Which of the following is likely to reduce the level of structural unemployment? To fight a recession, the Fed should conduct what kind of monetary policy to do what to interest rates and shift aggregate demand to the: A. contractionary; increase; left B. contractionary; decrease; Assume the demand for money curve is stationary and the Fed increases the money supply. The central bank uses various monetary tools such as open market operations, the Fed's fund rate, and reserve requirements to achieve its goals. B. there is an excess demand for bonds, so those looking to borrow by selling bonds can do so at a lower interest rate. B. the Fed is concerned about high unemployment rates. }\\ d. lend more reserves to commercial banks. Suppose the Federal Reserve undertakes an open market purchase of government bonds. 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.. The creation of a Federal Reserve System was recommended by. \text{Accounts receivable amount}&\text{\$\hspace{1pt}232,000}&\text{\$\hspace{1pt}129,000}&\text{\$\hspace{1pt}100,400}\\ b. will cause banks to make more loans. a. Government bond operations. Generally, when the Federal Reserve lowers interest rates, investment spending [{Blank}] and GDP [{Blank}]. \text{Selling expenses} \ldots & 500,000 copyright 2003-2023 Homework.Study.com. What can be used to shift aggregate demand? c. real income increases. If the Fed sells government bonds, this will: A. By the end of the year, over $40 billion of wealth had vanished. 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? d) Lowering the real interest rate. 16. \end{array} D. $100,000 in checkable-deposit liabilities and $30,000 in reserves. The capital account surplus will increase. The Fed lowers the federal funds rate. 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. 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. d. sells U.S. Treasury bills to the federal government. 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? The change is negative it means that excess reserve falls by -100000000 or 100 million. b. Lowers the cost of borrowing from the Fed, encouraging banks to make loans to the general public. B. The shape of the curve determines the impact of an aggregate demand shift on prices and output. A, Suppose that the Fed engages in an open-market purchase of $4,000 in securities from Bank A. The current account deficit will increase. Decrease the discount rate. b. sell government securities. b. the same thing as the long-term growth rate of the money supply. 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 Increase; appreciate b. a. decrease; decrease; decrease b. to send you a reset link. B ) bond yields will fall 2) A negative output gap indicates that A) nominal GDP is below real GDP. Figure 14.10c depicts the aggregate investment function of an economy. The use of money and credit controls to change macroeconomic activity is known as: Monetary policy. A. change the liquidity levels of banks. The information provided should help you work out why you missed a question or three! b) increases, so the money supply decreases. B. excess reserves at commercial banks will decrease. Money is functioning as a store of value if you: Put it in a savings account so you can buy a new car next summer. 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 _______. &\textbf{Original Categories}&\textbf{Categories Change}\\[5pt] How would this affect the money supply? The Federal Open Market Committee is responsible for: a) reducing the Fed's reliance on open market operations. 1. Inflation rate _____. 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. 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 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. 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. B. fewer reserves and inc, Suppose you read in the paper that the Fed plans to reduce money supply. B. increase the supply of bonds, decrease bond prices, and increase interest rates. c. reduce the reserve requirement. 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. $$ A change in the reserve requirement affects: The money multiplier and excess reserves. \text{General and administrative expenses} \ldots & 500,000 \\ lower reserve requirements.I and III onlyCurrently the Fed sets monetary policy by targetingthe Fed funds rate From October 1983 . c. increase, down. $$ This situation is an example of: After quitting one job, some people with marketable skills find that it takes several months to find a new job. 2. Increase / Decrease b. receivables. If the Fed sells $1 million of government bonds, what is the effect on the economy s reserves and money supply? Issuanceofstock. Cashdividends. U.S.incometaxrateontheU.S.divisionsoperatingincome, FrenchincometaxrateontheFrenchdivisionsoperatingincome, Sellingprice(netofmarketinganddistributioncosts)inFrance, Alexander Holmes, Barbara Illowsky, Susan Dean, Claudia Bienias Gilbertson, Debra Gentene, Mark W Lehman, Fundamentals of Engineering Economic Analysis, David Besanko, Mark Shanley, Scott Schaefer, Don Herrmann, J. David Spiceland, Wayne Thomas. Enter the email address you signed up with and we'll email you a reset link. The financial sector has grown relative to the real economy and become more fragile. If the Fed uses open-market operations, should it buy or sell government securities? . 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 ______. B. expansionary monetary policy by selling Treasury securities. b. engage in open market purchases of government securities. Ceteris paribus, if the Fed reduces the reserve requirement, then: A. Fiscal policy should be used to shift the aggregate demand curve. State tax on first $3,000: 1.5$ percent. The Fed decides that it wants to expand the money supply by $40 million. C. influence the federal funds rate. \text{Accounts receivable amount}&\text{\$\hspace{1pt}263,000}&\text{\$\hspace{1pt}134,200}&\text{\$\hspace{1pt}64,200}\\ 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. b-A rise in corporate tax would shift the investment line outwards. C. excess reserves at commercial banks will increase. 1015. a) Given the required reserve ratio, RR/D=0.10, the excess reserves to deposits ratio, ER/D=0.06, the currency to deposits ratio, Assume that any money lent by a bank is always deposited back in the banking system as a checkable deposit and that the required reserve ratio is 15%. Which action would the federal reserve rate take to expand the money supply and lower the equilibrium interest rate? c) increases government spending and/or cuts taxes. }\\ a) decrease, downward b) decrease, upward c) inc. 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). Using the oversimplified money multiplier, the money suppl, Assume the reserve requirement is 10%. 1. b. the Federal Reserve buys bonds on the open market. d) setting interest r, Suppose the Federal Reserve sells $30 million worth of securities to a bank. If the Fed is using open-market operations, will it, Key Concept: Open market operations When the Fed buys government securities, it a. D) Required reserves decrease. c. They wil, 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. Monetary policy refers to the central bank's actions to the control of money supply in the economy. Check all that apply. a. mortgages; Bank of America b. government securities; New York Fed c. government securities; Federal Reserve Bank of Florida d. Mortgages; Federal Reserve. a. b. This action increased the money supply by $2 million. b) means by which the Fed acts as the government's banker. b) Lowering the nominal interest rate. The aggregate demand curve should shift rightward. Get access to this video and our entire Q&A library, Monetary Policy & The Federal Reserve System. \text{Total uncollectible? b. prices to increase by 3%. What impact would this action have on the economy? 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 aggregate demand curve should shift rightward. $$ 3 . Now suppose the. A perfectly competitive firm is a price taker because: It has no control over the market price of its product. \end{array} Price falls to the level of minimum average total cost. c. prices to increase by 2%. If the Federal Reserve increases the nominal money supply by 5 % and real income increases by 2%, then we would expect: a. prices to increase by 5%. a-Ceteris paribus, an increase in the interest rate would lead to a fall in investment due to an inward shift of the investment line. Ceteris paribus, based on the aggregate supply curve, if the price level _______ the quantity of real output _______ increases. Ceteris paribus, if the Fed raises the reserve requirement, then: The lending capacity of the banking system decreases. b) increases the money supply and lowers interest rates. Suppose the Federal Reserve wishes to use monetary policy to close an expansionary gap. \text{Direct materials used} \ldots & \$ 750,000\\ The result will be a in the money market and a in the bond market, which will push bond prices and interest rates will unti, Starting from a monetary equilibrium condition, an increase in the money supply A. increases the bond price and increases the interest rate. Which of the following is likely to occur if OPEC increases the amount of oil it supplies and domestic energy prices fall, ceteris paribus? $$ Toby Vail. 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. B. a dollar bill. then the Fed. eachus, which of the following will occur if the Fed buys bonds through open-market operations? Suppose commercial banks use excess reserves to buy government bonds from the public. A. decreases; decreases B. decreases; increases C. increases; decreases D. increases. Increase the demand for money. Total deposits decrease. ceteris paribus, if the fed raises the reserve requirement, then: Posted on . D. interest rates will increase. \end{array} When the Fed buys bonds in open-market operations, it _____ the money supply. If the Fed wants to raise short-term interest rates, it should a. act to increase the money supply. If the Fed decreases the money supply, GDP ________. 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? 3. 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? Decrease the price it asks for the bonds. b. buys or sells foreign currency. 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. Raise discount rate 2. Open market operations When the Fed sells government securities, it: a. lowers the cost of borrowing from the Fed, encouraging banks to make loans to the general public. a. B. During the last recession (2008-09. 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. a. Personal exemptions of$1,500. In the market for reserves, if the federal funds rate is above the interest rate paid on excess reserves, an open market sale ________ the ________ of reserves, causing the federal funds rate to increase, everything else held constant. A. Any import duty paid to the French authorities is a deductible expense for calculating French income taxes. Is this an example of fiscal policy or monetary policy? raise the discount rate. a) decreases, decreases b) decreases, increases c) increases, decr, An increase in the interest rate will cause: an increase in the demand for money an increase in the supply of money a decrease in the demand for money a decrease in the quantity demanded of money, When the Federal Reserve increases the money supply and expands aggregate demand, it moves the economy along the Phillips curve to a point with (blank) inflation and (blank) unemployment. Which of the following is consistent with what Keynes believed? Tax on amount over $3,000 :3 percent. 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. Your email address is only used to allow you to reset your password. Raise the reserve requirement, increase the discount rate, or . 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. 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. c. has an expansionary effect on the money supply. Our experts can answer your tough homework and study questions. What are some basic monetary policy tools used by the Fed? 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%. They will increase. \begin{array}{lcc} c. Fed sells bonds. c. the government increases spending and lowers taxes. The Fed lowers the federal funds rate. 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. d. the money supply is not likely to change. Consider an open market purchase by the Fed of $16 billion of Treasury bonds. c. means by which the Fed acts as the government's banker. Working Paper No. If the Fed sells $5 million worth of government securities to the public, what will be the change in the money supply? b. increase the supply of bonds, thus driving down the interest ra, If the Fed begins to buy treasury bills to counter a recession, we would expect to see an increase in the a. demand for money. c) borrow reserves from other banks. D. change the level of reserves it holds for banks. E. discount rate operations. Ceteris paribus, if the Fed raises the reserve requirement, then Most studied answer the lending capacity of the banking system decreases. Bank A with total deposits of $100 million isfully loaned up. If the Fed is using open-market operations, An open market operation is a purchase or sale of ___ by the ___ in the open market. c. When the Fed decreases the interest rate it p, Which of the following options is correct? 1. Transcribed Image Text: Question Now we introduce banks that will act as liquidity providers in the economy. increase; decrease decrease; decrease increase; increase decrease; increas. Which of the following lends reserves to private banks? \text{Net Income (Loss)}&\text{\hspace{12pt}?}&\text{\hspace{12pt}? The key decision maker for U.S. monetary policy is: Ceteris paribus, if the Fed raises the reserve requirement, then: e The lending capacity of the banking system decreases. The money multiplier is equal to ______ and the reserve ratio is equal to _____%. The difference between price and average total cost multiplied by the quantity sold. It transfers money from spenders to savers. $$ b) an increase in the money supply and a decrease in the interest rate. An increase in the reserve ratio: a. increases the money multiplier. Accordingly, the Board is amending Regulation D to set the low reserve tranche for net transaction accounts for 2022 at $640.6 million, an increase of $457.7 million from 2021. 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. the sellers of such securities buy new securities in the open market and t. Assume there is no leakage from the banking system and that all commercial banks are loaned up. b. lowers inflation but raises unemploym, Assume the demand for money curve is stationary and the Fed increases the money supply. If the Fed sells $1 million of government bonds, what is the effect on the economy's reserves and money supply? Changing the reserve requirement is expensive for banks. a) fall; rise b) rise; rise c) rise; fall d) fall; fall, If the Federal Reserve conducts expansionary money policy to expand the money supply, it is most likely to change nominal interest rates and output in which of the following ways? Given an inflationary gap, the Federal Reserve will use monetary policy to do what to interest rates and to aggregate demand? What fiscal policy tools are used to shift the aggregate demand curve? If the Federal Reserve increases the discount rate: a. the federal funds rate must decrease. 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. b. the Open Market Desk at the Federal Reserve Board in Washington, D.C. c. the National Bureau of Economic, Suppose the Fed buys $10 billion of securities from the public and the public deposits the payment they receive from the Fed in their checking accounts at their commercial banks. Your email address is only used to allow you to reset your password. These actions can be classified as expansionary or contractionary, depending on the prevailing market conditions. 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. C. Controlling the supply of money. During the year, the company started and completed 45 motor homes at a cost of $\$ 55,000$ per unit. D) there is no effect on bond yields. 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. When the Federal Reserve increases the money supply, ceteris paribus, the money supply curve will shift to the right, as illustrated in the graph, then the interest rate in equilibrium will decreases. Where do you suppose the Fed gets the cash, to do this ? Terms of Service. b. the interest rate rises and this stimulates consumption spending. 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? D. Transaction demand for, To ease monetary policy to fight a recession, the Federal Reserve would ____. D. The money multiplier decreases. When the Federal Reserve System buys government securities on the open market: A. the money supply will decrease. a. use open market operations to buy Treasury bills b. use open market operations to sell Treasury bills c. use discount policy to raise the disc. Look at the large card and try to recall what is on the other side. The answer is b. rate of interest decreases. Over the 30-year life of the. c) decreases government spending and/or raises taxes. Facility location decisions are significant for an organization because:? eachus, which of the following will occur if the Fed buys bonds through open-market operations? Then the bank can make new loans in the amount of: Initially a bank has a minimum reserve requirement of 15 percent and no excess reserves. To decrease the money supply the Fed can: Raise the reserve requirement, raise the discount rate, or sell bonds. Assume central bank money (H) is initially equal to $100 million. D.bond prices will rise, and interest rates will fall. What happens to interest rates? It improves aggregate demand, thus increasing the country's GDP. \text{Income tax expense} \ldots & 100,000 \\ Excess reserves increase. If the Fed raises the reserve requirement, the money supply _____. \end{array} See Answer Ceteris paribus, if the Fed raised the required reserve ratio: Expert Answer c. buy bonds, thus driving up the interest rate. D. open bonds operations. Explain. When the Fed buys government bonds, the reserve of the banking system: a) increases, so the money supply increases. What is the reserve-deposit ratio? 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. b) borrow reserves from the public. Consider an expansionary open market operation. We develop a model of price formation in a dealership market where monitoring of the information flow requires costly effort. Suppose during the same period average prices in the economy rose by 150 percent.The paintings owner, relative to those who do not own paintings, experienced a: Lower real wealth as a result of the wealth effect. C. the price level in the economy will rise, thus i. If the fed increases the money supply, what will happen to each of the following (other things being equal)? A) increases; supply. Assume that the currency-deposit ratio is 0.5. $$ d) means by which the Fed supplies the, Suppose the Fed wishes to use monetary policy to close an expansionary gap. d. buying and selling of government, 1) Open market operations are the: A) buying and selling of Federal Reserve Notes in the open market. \begin{array}{lcc} a. higher, higher b. higher, lower c. lower, higher d. lower, lower, When lots of people put their money into bonds, the demand for money and the interest rate on bonds. B. an exchange between a private bank and the Federal Reserve where the Fed buys or sells government bonds to private banks. Which of the following is likely to occur if people reduce their spending because they are worried about an economic downturn, ceteris paribus? Demand; marginal revenue and marginal cost. 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. Multiple Choice . While those goals were articulated in 1977, 2 the approach and tools used to implement those objectives have changed over time. Fill in either rise/fall or increase/decrease. \textbf{Year Ended December 31, 2019}\\ If the economy is currently in monetary equilibrium, an increase in the money supply will a. 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. A change in government spending, a change in taxes, and monetary policy.