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Suppose the Federal Reserve purchases mortgage-backed securities (MBS). b. the price level increases. b. it buys Treasury securities, which decreases the money supply. 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. D. $100,000 in checkable-deposit liabilities and $30,000 in reserves. 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. c. When the Fed decreases the interest rate it p; Expansionary fiscal policy is when a. the government lowers spending and raises taxes. If the Fed raises the reserve requirement, the money supply _____. 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. 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 money multiplier is equal to ______ and the reserve ratio is equal to _____%. The price level to decrease c. Unemployment to decrease d. Investment to decrease. The use of money and credit controls to change macroeconomic activity is known as: Free . A. decreases; decreases B. decreases; increases C. increases; decreases D. increases. D. conduct open market sales. If the Federal Reserve System buys government securities from commercial banks and the public: a. the money supply will contract. It is considered to be less efficient for an economy than the use of money. C) buying and selling of government s. In carrying out open market operations, the Federal Reserve usually buys and sells U.S. Treasury securities. b. 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. Currency circulation in the economy will increase since the non-bank public will have sold their securities. The buying and selling of government securities by the Fed is known as: A. open market operations. Suppose commercial banks use excess reserves to buy government bonds from the public. B. purchases government bonds to decrease the money supply. It creates money, it creates a transactions-account balance for the borrower, and the money supply increases. b. What cannot be used to shift aggregate demand? D. Transaction demand for, To ease monetary policy to fight a recession, the Federal Reserve would ____. The Federal Reserve carries out open-market operations, purchasing $1 million worth of bonds from banks. &\textbf{past due}&\textbf{past due}&\textbf{past due}\\[5pt] "The federal bank can use open market operations as an instrument of monetary policy to manipulate interest rates and control supply of money." b. buys or sells foreign currency. d) All of the above. b. the interest rate increases c. the Federal Reserve purchases bonds. A combination of flexible rules and limited discretion. Explain the statement. The Fed lowers the federal funds rate. C. where a bank borrows reserves or bo, Open market operations are a) buying and selling of Federal Reserve Notes in the open market. a) increases; decreases, b) decreases; increases, c) decreases; decreases, d) increases; increases. The following is the past-due category information for outstanding receivable debt for 2019. a. 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 answer is b. rate of interest decreases. C. The lending capacity of the banking system increases. When the Fed buys government Securities in the open market (a) bank reserves increase (b) bank reserves decline (c) money supply increases but bank reserves remain unchanged (d) money supply declines but bank reserves remain unchanged. III. Expansionary fiscal policy: a) decreases the money supply and raises interest rates. b. means by which the Fed supplies the economy with currency. \textbf{ELEGANT LINENS}\\ 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. Suppose the Federal Reserve buys government securities from the non-bank public. When the Federal Reserve makes an open market purchase, the Fed: buys securities from banks and the public, which will decrease tha. Your email address is only used to allow you to reset your password. Keynes viewed the economy as inherently unstable and suggested that during a recession policy makers should: Cut taxes and/or increase government spending. Make sure to remember your password. Which of the following indicates the appropriate change in the U.S. economy? That reduces liquidity and slows economic activity. 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. Ceteris paribus, if the Fed reduces the reserve requirement,thenMultiple Choicetotal reserves increase.the lending capacity of the banking system increases.total deposits decrease.the money multiplier decreases. 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. C) Total deposits decrease. c) increases government spending and/or cuts taxes. 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. A) increases; increases B) increases; decreases C) decreases; increases D) decreases; decreases, If the Federal Reserve was concerned about the "crowding-out" effect, they could engage in: A. expansionary monetary policy by lowering the discount rate. Generally, when the Federal Reserve lowers interest rates, investment spending [{Blank}] and GDP [{Blank}]. The difference between price and average total cost multiplied by the quantity sold. Look at the large card and try to recall what is on the other side. A Burton marketing division in Lille, France, imports 200,000 chainsaws annually from the United States. Savings accounts and certificates of deposit are called. 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. Q01 . 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. Match the terms with definitions. B. decreases the bond price and decreases the interest rate. 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. 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. Inflation rate _____. 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. d. sells U.S. Treasury bills to the federal government. An increase in the money supply: A. lowers the interest rate, causing a decrease in investment and an increase in GDP B. lowers the interest rate, causing an increase in investment and a decrease in GDP C. lowers the interest rate, causing an increase in, If there is a negative 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. sell government securities. 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. The nominal interest rates falls. \text{Total uncollectible? What are some basic monetary policy tools used by the Fed? d. commercial bank, Assume all money is held in the form of currency. If the Fed wants to raise short-term interest rates, it should a. act to increase the money supply. a)increases; increases b)increases; decreases c)decreases; increase, If the Federal Reserve increases the rate of money growth and maintains it at the new higher rate, eventually expected inflation will (blank) and the short-run Phillips curve will shift (blank). The key decision maker for general Federal Reserve policy is the: Free . b) borrow more from the Fed and lend less to the public. 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 Ceteris paribus, if the Fed reduces the reserve requirement ratio, then: A) The lending capacity of the banking system increases. Using the oversimplified money multiplier, the money suppl, Assume the reserve requirement is 10%. Generally, the central bank. 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. Fill in either rise/fall or increase/decrease. 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? Ceteris paribus, based on the real balances effect, if the price level falls: According to the foreign trade effect, when the U.S. price level decreases, U.S. consumers are likely to buy: Which of the following is an example of the foreign trade effect, assuming the U.S. price level decreases? Now suppose the Fed conducts an open market purchase of government bonds equal to $1, Fiscal policy is conducted by: a. A) Increase money supply to decrease interest rates, increase i. Expansionary monetary policy: a) decreases government spending and/or raises taxes. If the Fed raises the reserve requirement, the money supply _____. }\\ The result is that people a. increase the supply of bonds, thus driving up the interest rate. Multiple . If a bank does not have enough reserves, it can. Then, ceteris paribus, bank reserves , currency in circulation and thus the monetary base will decreases etary base by increasing bank reserves only. The Federal Reserve Bank b. The money supply increases. The Federal Reserve has a few main goals with respect to the economy: to promote maximum employment, keep prices stable and ensure moderate long-term interest rates. See Answer increase; decrease decrease; decrease increase; increase decrease; increas. Where do you suppose the Fed gets the cash, to do this ? If the FED sells $10 million worth of government securities in an open market operation, then the money supply can potentially: A. increase by $150 million. a. decrease, downward. a. A change in government spending, a change in taxes, and monetary policy. 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? B. The Fed funds market is the market where banks a) buy and sell bonds to the Federal Reserve. C. decreases, 1. Its marginal revenue curve is below its demand curve. The result is imperfect monitoring, which creates profit opportunities for speculators, who do not act as dealers but simply a. decrease; decrease; decrease b. Transcribed Image Text: Question Now we introduce banks that will act as liquidity providers in the economy. b. rate of interest decreases. Which action would the federal reserve rate take to expand the money supply and lower the equilibrium interest rate? b) running the check-clearing process. Multiple Choice . B. an exchange between a private bank and the Federal Reserve where the Fed buys or sells government bonds to private banks. The Federal Reserve (the Fed), the central bank of the United States, has a Congressional mandate to promote maximum employment and price stability. 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. 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. If market interest rates rise, the selling price of existing bonds in the market will, ceteris paribus, . If the Fed is using open-market operations, An open market operation is a purchase or sale of ___ by the ___ in the open market. In the money market, an excess demand of money will: A. increase the supply of bonds, increase bond prices, and decrease interest rates. If the Fed sells bonds: A.aggregate demand will increase. Remember that the transfer price must be between the full manufacturing cost per unit of $175 and the market price of$250 of comparable imports into France. b. 26. 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. Which of the following is likely to cause a leftward shift in the aggregate supply curve, ceteris paribus? 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. Fed sells bonds. 1. Consider an expansionary open market operation. The Fed decides that it wants to expand the money supply by $40 million. }\\ b. decrease, upward. &\textbf{Original Categories}&\textbf{Categories Change}\\[5pt] What effect will this open market operation have on demand deposits and M1? In order to increase sales by one item per month, the monopolist must lower the price of its software by $1 to $49. c. the money supply and the price level would increase. Ceteris paribus, based on the aggregate supply curve, if the price level _______ the quantity of real output _______ increases. 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? When the Fed decreases the discount rate, banks will a) borrow more from the Fed and lend more to the public. \begin{array}{c} Ceteris paribus, what will occur if the Fed buys bonds through open-market operations? 16. c. Decrease interest rates. a. If the Federal Reserve would like to increase the money supply, it can the reserve ratio, the discount rate, or government securities in open market operations. The current account deficit will increase. Currency, transactions accounts, and traveler's checks. Its policymakers are welcoming the recent slowdown in price increases, and the disinflation trend gives . then the Fed. Total costs for the year (summarized alphabetically) were as follows: It forces them to modify their procedures. In addition, the company had six partially completed units in its factory at year-end. B ) bond yields will fall 2) A negative output gap indicates that A) nominal GDP is below real GDP. C. treasury bond operations. We start by assuming that there is no reserve requirement or lending by the Central Bank. Decrease in the federal funds rate B. The U.S. Treasury c. The U.S. Mint d. The federal government And involves: a. Quantitative easing b. 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. b. engage in open market purchases of government securities. Working Paper No. Increase; depreciate c. Decrease; de, Under expansionary monetary policy, the Federal Reserve increases the money supply, allowing the banking system to make additional loans - which increases the money supply even more - resulting in higher economic growth. The supply of money increases when: a. the value of money increases. 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. influence the federal funds rate. 2. For the federal deficit to be lowered, a) the federal gov't must decrease its spending and increase net exports. b. c. the money supply divided by nominal GDP. 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. Explain. The Great Depression was caused by a steep decline in the money supply when the stock market crashed in 1929. Q02 . 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. 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. a. 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. Price falls to the level of minimum average total cost. The buying and selling of government bonds by the Fed to control bank reserves and the money supply are operations known as a. \text{Total uncollectible? 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. Previous question Next question An expansionary fiscal policy is when a. the government lowers spending and raises taxes. 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? When the Fed raises the reserve requirement, it's executing contractionary policy. \text{Variable manufacturing cost per chainsaw} & \text{\$100}\\ \text{Net Income (Loss)}&\text{\hspace{12pt}?}&\text{\hspace{12pt}? Assume that the currency-deposit ratio is 0.5. Suppose the Federal Reserve Bank buys Treasury securities. C. The nominal interest rate does not change. 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? Banks now have more money to loan since they are required to hold less in reserve. \end{array} a. mortgages; Bank of America b. government securities; New York Fed c. government securities; Federal Reserve Bank of Florida d. Mortgages; Federal Reserve. Each bond is worth $1000 (so the Fed has bought $3000 worth of bonds). \text{Direct materials used} \ldots & \$ 750,000\\ Assume the required reserve ratio is 10 percent and the FOMC orders an open market sale of $50 million in government securities to banks. c. prices to increase by 2%. c. buy bonds, thus driving up the interest rate. This type of market is called: As the economy falls from the peak to the trough of the business cycle: Cyclical unemployment should increase and real GDP should decline.