Could the Federal Reserve continue to carry out open market operations? }\\ If the Fed sells $1 million of government bonds, what is the effect on the economy s reserves and money supply? If you've accidentally put the card in the wrong box, just click on the card to take it out of the box. a. D. Decrease the supply of money. Check all that apply. Ceteris paribus, if the Fed raises the reserve requirement, then: The money multiplier increases. c. means by which the Fed acts as the government's banker. b. the Federal Reserve buys bonds on the open market. Open market operations c. Printing mo. c. Increase the required reserve, Suppose the Federal Reserve s trading desk buys $500,000 in T-bills from a securities dealer who then deposits the Fed's check-in Best National Bank. b) means by which the Fed acts as the government's banker. Toby Vail. Keynes viewed the economy as inherently unstable and suggested that during a recession policy makers should: Cut taxes and/or increase government spending. 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. The four components of aggregate demand are: Consumption, investment, government spending, and net exports. B. a dollar bill. \end{array} 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. Make sure you say increase or decrease/buy or sell. If the market price was below the ATC and at the current firm's rate of production the MC was less than the market price an increase in output would: increase profit but economic profits would still be negative. The U.S. Treasury c. The U.S. Mint d. The federal government And involves: a. Quantitative easing b. 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. c. real income increases. A. decrease, downward B. decrease, upward C. increase, downward D. increase, If inflation begins to rise rapidly, which step is the Federal Reserve likely to take? The lender who forecloses will then end up with about $40,000. Suppose that the sellers of government securities deposit the checks drawn on the New York Fed into their bank account. When the Federal Reserve increases the discount-rate increases the discount rate as a part of a contractionary monetary policy, there is: A. Increase government spending. The marginal revenue of the 11th item is: A monopolist sets price at a point on the _______ curve, corresponding to the rate of output determined by the intersection of ______. If you knew the answer, click the green Know box. Suppose the Federal Reserve purchases mortgage-backed securities (MBS). In addition, the company had six partially completed units in its factory at year-end. \textbf{ELEGANT LINENS}\\ For the federal deficit to be lowered, a) the federal gov't must decrease its spending and increase net exports. 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. How will the lending capacity of the banking system be affected if the reserve requirement is 5 percent? 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%. The money supply increases. c. state and local government agencies only. 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. 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. Money supply to decrease b. If the fed increases the money supply, what will happen to each of the following (other things being equal)? Figure 14.10c depicts the aggregate investment function of an economy. d) means by which the Fed supplies the, Suppose the Fed wishes to use monetary policy to close an expansionary gap. Facility location decisions are significant for an organization because:? D. $100,000 in checkable-deposit liabilities and $30,000 in reserves. Currency, transactions accounts, and traveler's checks. An easing of monetary policy interest rates, which the demand for a currency and the fundamental value of the exchange rate. It allows people to obtain more goods than they can using money. Look at the large card and try to recall what is on the other side. The aggregate demand curve should shift rightward. 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 _______. Suppose that the sellers of government securities redeem these checks drawn on the New York Fed for currency. An increase in the reserve ratio: a. increases the money multiplier. D. All of the above. c. the Federal Reserve System. d. has a contractionary effect on the money supply. If the Fed raises the reserve requirement, the money supply _____. 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. 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? a. Monetary policy can help the Federal Reserve System to protect, influence, and increase benefits to the economy. Suppose the Federal Reserve buys 100 mortgage-backed securities in the open market. b. to send you a reset link. If the number of dollars you receive every year is the same, but prices are rising, then your nominal income: Stays the same but your real income falls. 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. Answer the question based on the following balance sheet for the First National Bank. Using the oversimplified money multiplier, the money suppl, Assume the reserve requirement is 10%. The Federal Reserve cut interest rates on March 3, 2020, in response to COVID-19. $$ \begin{array}{lcc} Which of the following functions does the Fed perform? A perfectly competitive firm is a price taker because: It has no control over the market price of its product. b) increases the money supply and lowers interest rates. Personal exemptions of$1,500. The monetary base in the economy will increase. c. the interest rate rises and this. (ii) instructs the New York Fed to sell government securities in the foreign exchange market. c. When the Fed decreases the interest rate it p; Demand; marginal revenue and marginal cost. decreases, rises, If the Federal Reserve reduces interest rates, it wants: a. 26. \text{Cost of Goods Sold}&\underline{\text{\hspace{19pt}85,250}}&\underline{\text{\hspace{19pt}85,250}}\\ Suppose the Federal Reserve buys government securities from commercial banks. Hence C is the correct option. Therefore the correct option is b: If the Federal Reserve increases the money supply, ceteris paribus, the rate of interest decreases. 23. If the Fed conducts an open-market sale, bank reserves _ and the money supply is likely to _. If the Federal Reserve increases the money supply, ceteris paribus, the: a. rate of interest is unaffected. \text{Direct materials used} \ldots & \$ 750,000\\ Key Points. 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) Total deposits decrease. When the Federal Reserve sells bonds as a part of a contractionary monetary policy, there is: A. a) decrease, downward b) decrease, upward c) inc. In the money market, an excess demand of money will: A. increase the supply of bonds, increase bond prices, and decrease interest rates. A stock person who is laid off by a department store because retail sales across the country have decreased is _______ unemployed. Now suppose the. What happens to interest rates? Which action would the federal reserve rate take to expand the money supply and lower the equilibrium interest rate? 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? 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. A. 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. 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 Suppose the banks in the Federal Reserve System have $100 million in transactions accounts and the reserve requirement is 0.10. When the Fed buys bonds in open-market operations, it _____ the money supply. c. commercial bank reserves will be unaffected. See Answer C. increase by $50 million. 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. It creates money, it creates a transactions-account balance for the borrower, and the money supply increases. 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. Determine the December 31, 2012, balances in Wave Waters shareholders equity accounts and total shareholders equity on this date. 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. It forces them to modify their procedures. Government bond operations. If the Federal Reserve wants to decrease the money supply, it should: a. a. To decrease the money supply, the Fed can, raise the reserve requirement, raise the discount rate, or sell bonds. c. the government increases spending and lowers taxes. All other trademarks and copyrights are the property of their respective owners. If the Fed wants to raise short-term interest rates, it should a. act to increase the money supply. \begin{array}{l r} b. the price level increases. The paper argues that the process of financialization has profoundly changed how capitalist economies operate. 16. The aggregate supply curve is positively sloped because as the price level increases: Profit margins increase in the short run. Suppose further that the required reserve, Explain briefly: a. D) there is no effect on bond yields. 1. 1) Ceteris paribus, if bond prices rise, then A) the Federal reserve must be pursuing contractionary monetary policy. The Fed decides that it wants to expand the money supply by $40 million. The Federal Reserve conducts open market operations when it wants to [{Blank}]? 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 ______. Which of the following indicates the appropriate change in the U.S. economy after government intervention? b. rate of interest decreases. b) borrow reserves from the public. 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. 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 %. Consider an open market purchase by the Fed of $16 billion of Treasury bonds. This is an example of which type of unemployment? are the minimum amount of reserves a bank is required to hold. Decrease by $100, Suppose the Federal Reserve buys 3 treasury bonds from the public. 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. A Burton marketing division in Lille, France, imports 200,000 chainsaws annually from the United States. Ceteris paribus, an increase in _______ will cause an increase in ______. If not, how will the Central Bank control inflation? B. decrease by $200 million. Ceteris paribus, what will occur if the Fed buys bonds through open-market operations? Which of the following is likely to occur if people reduce their spending because they are worried about an economic downturn, ceteris paribus? During the last recession (2008-09. What cannot be used to shift aggregate demand? B. Explain your reasoning. b. increase the supply of bonds, thus driving down the interest rate. Free . Which of the following could cause a recession? 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). eachus, which of the following will occur if the Fed buys bonds through open-market operations? c) not change. d. lend more reserves to commercial banks. The difference between price and average total cost multiplied by the quantity sold. Use a balance sheet to show the impact on the bank's loans. Conduct open market purchases. D. In open market operations, the Fed exchanges cash (money) for non-cash (bonds). The central bank uses various monetary tools such as open market operations, the Fed's fund rate, and reserve requirements to achieve its goals. Terms of Service. c). b. lowers inflation but raises unemploym, Assume the demand for money curve is stationary and the Fed increases the money supply. b. In terms of pricing, which of the following is not true for a monopolist? a. increases, rises b. increases, falls c. decreases, falls d. decreases, does not change e. . D.bond prices will rise, and interest rates will fall. 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)? C. decrease interest rates. Conduct open market sales of government bonds. If the Fed decreases the money supply, GDP ________. 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. d) increases the money supply and lowers interest rates. If the Fed raises the reserve requirement, the money supply _____. Your email address is only used to allow you to reset your password. e. increase inflation. b) the federal reserve must raise interest rates and lower the required reserve ratio, If the Federal Reserve ("Fed") engages in the contractionary monetary policy then: A. the Fed is seeking to decrease the money supply and lower interest rates to lower inflation. 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. The Fed approved a 0.25 percentage point rate hike, the first increase since December 2018. If you forget it there is no way for StudyStack III. are in the same box the next time you log in. 2. Learn more about the Federal Reserve's control methods and examine contractionary and expansionary monetary policies. d. lower reserve requirements. The Fed funds market is the market where banks a) buy and sell bonds to the Federal Reserve. a. D. change the level of reserves it holds for banks. a. then the Fed. Decrease the price it asks for the bonds. 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. d. commercial bank, Assume all money is held in the form of currency. Required reserves decrease. Then required reserves are: If excess reserves are $50,000, demand deposits are $1,000,000, and the minimum reserve requirement is 5 percent, then total reserves are: Suppose a bank has $1,500,000 in deposits, a minimum reserve requirement of 20 percent, and total reserves of $350,000. b) increase. Cause the money supply to decrease, b. copyright 2003-2023 Homework.Study.com. D. The collectio. The buying and selling of government bonds by the Fed to control bank reserves and the money supply are operations known as a. The Federal Reserve (the Fed), the central bank of the United States, has a Congressional mandate to promote maximum employment and price stability. What effect will this open market operation have on demand deposits and M1? Why does an open market purchase of Treasury securities by the Federal Reserve increase bank reserves? c. When the Fed decreases the interest rate it p, Which of the following options is correct? Biagio Bossone. 41. Privacy Policy and Assume a fixed demand for money curve and the Fed decreases the money supply. d. prices to remain constant. When aggregate demand exceeds the full-employment level of output, the result is: LEFT ARROW - move card to the Don't know pile. &\textbf{0-60 days}&\textbf{61-120 days}&\textbf{Over 120 days}\\ a. Multiple Choice . c. Fed sells bonds. Fiscal policy should be used to shift the aggregate demand curve. 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. 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. the Federal Reserve buys bonds on the open market. Interest Rates / Real GDP a. If price is greater than marginal cost, a competitive firm should increase output because additional units of output will: Add to the firm's profits (or reduce losses). B. purchases government bonds to decrease the money supply. d. decrease the discount rate. 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. Suppose a bank has $50,000 in transactions accounts and a minimum reserve requirement of 10 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. You can also use your keyboard to move the cards as follows: If you are logged in to your account, this website will remember which cards you know and don't know so that they D) Required reserves 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%. U.S. goods are less expensive for Americans so they buy fewer imports and more domestic goods. Bank A with total deposits of $100 million isfully loaned up. b. The required reserve. A change in government spending, a change in taxes, and monetary policy. If the Federal Reserve increases the discount rate: a. the federal funds rate must decrease. b. A. \text{Accounts receivable amount}&\text{\$\hspace{1pt}232,000}&\text{\$\hspace{1pt}129,000}&\text{\$\hspace{1pt}100,400}\\ c. Offer rat, 1. If the price of computers falls during a period when the average price level remains constant, which of the following has occurred? d. a decrease in the quantity de. 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. If there is an adverse supply shock and the Federal Reserve responds by increasing the growth rate of the money supply, then in the short run the Federal Reserve's action: a. lowers both inflation and unemployment b. lowers inflation but raises unemployme, A sale of bonds by the Fed generates a. a decrease in the demand for money balances. Answer: Answer: B. What is Wave Waters debt ratio on this date? How does the Federal Reserve regulate the money supply? The creation of a Federal Reserve System was recommended by. Suppose the economy is initially experiencing an inflationary gap. An open market operation decreases the money supply when the Federal Reserve a. sells bonds to banks, which increases bank reserves. }\\ Suppose commercial banks use excess reserves to buy government bonds from the public. A decrease in the reserve ratio will: a. $$. b) decreases the money supply and raises interest rates. $$ According to the monetarist view, the aggregate supply curve is: Vertical at the natural rate of unemployment. &\textbf{Original Categories}&\textbf{Categories Change}\\[5pt] Cause the money supply to increase, c. Not affect the money supply, d. Decrease the money multiplier. &\textbf{past due}&\textbf{past due}&\textbf{past due}\\[5pt] c. has an expansionary effect on the money supply. Suppose the Fed conducts $10 million open market purchase from Bank A. 1. Raise reserve requirements 3.
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