The deposit-creation potential of the banking system is: Suppose the entire banking system has $10,000 in excess reserves and a required reserve ratio of 20 percent. They will remain unchanged. 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? The sale of bonds to the Fed by the public C. Increases in banks' excess reserves D. Increases in. A lower amount of money in the economy makes it more expensive to borrow for banks and consumers.. Increase the reserve requirement. At what price per share did Wave Water issue common stock during 2012? \text{Net Income (Loss)}&\text{\hspace{12pt}?}&\text{\hspace{12pt}? 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. 23. 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? d. the average number of times per year a dollar is spent. b. are in the same box the next time you log in. You'll get a detailed solution from a subject matter expert that helps you learn core concepts. The money supply decreases. 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? 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. Tax on amount over $3,000 :3 percent. c. engage in open market sales of government securities. b) Lowering the nominal interest rate. Then click the card to flip it. 1. 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. It is considered to be less efficient for an economy than the use of money. 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. View Answer. d) borrow reserves from the Federal Reserve. B. there is an excess demand for bonds, so those looking to borrow by selling bonds can do so at a lower interest rate. 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 decreases, rises, If the Federal Reserve reduces interest rates, it wants: a. b. the same thing as the long-term growth rate of the money supply. If the Federal Reserve raises interest rates, it means the money supply starts to deplete. 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. A. b. increase causing an increase in investment spending shifting aggregate demand, When the Federal Reserve increases the money supply, it aggregate demand and moves the economy along the Phillips curve to a point with inflation and unemployment. \text{Total Expenses}&\text{\hspace{12pt}?}&\text{\hspace{12pt}? 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. The money supply increases. b) means by which the Fed acts as the government's banker. The Treasury buys bonds in the open market c. The Fed reduces reserve requirements d. The Treasury sells b. c. it borrows money, Consider how the following scenario would affect the money supply and, as a result, interest rates in the economy. Your email address is only used to allow you to reset your password. Also assume the Federal Reserve conducts an Open Market Operations purchase of U.S. Treasury securities in the amoun, Assume that the reserve requirement is 20 percent, banks do not hold excess reserves, and there is no cash held by the public. lower reserve requirements.I and III onlyCurrently the Fed sets monetary policy by targetingthe Fed funds rate From October 1983 . 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. Fill in either rise/fall or increase/decrease. 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. Its marginal revenue curve is below its demand curve. }\\ When you need a break, try one of the other activities listed below the flashcards like Matching, Snowman, or Hungry Bug. B. c. the money supply divided by nominal GDP. B. federal bond operations. Assume central bank money (H) is initially equal to $100 million. d. raise the treasury bill rate. "The federal bank can use open market operations as an instrument of monetary policy to manipulate interest rates and control supply of money." 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. 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.. Should the Fed increase or decrease the money supply? Privacy Policy and When the Federal Reserve makes an open market purchase, the Fed: buys securities from banks and the public, which will decrease tha. b. the Federal Reserve buys bonds on the open market. The Federal Reserve uses open market operations to control the money supply when it A. issues government bonds to finance the federal government's deficit. c) decreases, so the money supply increases. \text{Variable manufacturing cost per chainsaw} & \text{\$100}\\ 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). 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? If market interest rates rise, the selling price of existing bonds in the market will, ceteris paribus, . All rights reserved. A. c. buy bonds, thus driving up the interest rate. The total change in deposits (with no drains) would be$12,857 million = (1/0.07) $900 million If the Fed wishes to stimulate the economy, it could I. buy U.S. government securities.II. d. lend more reserves to commercial banks. Consider an expansionary open market operation. Suppose that the Fed purchases from bank B some bonds in the open market and that, before the sale of bonds, bank B had no excess reserves. 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. 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. What happens to interest rates? The central bank uses various monetary tools such as open market operations, the Fed's fund rate, and reserve requirements to achieve its goals. Martin takes $150 out of his checking account and hides it in his house as cash. If the Fed raises the reserve requirement, 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. b) an open market sale and expansionary monetary policy. (Banks must hold more funds used for loans in reserve and there is a greater leakage as subsequent deposits will yield smaller excess reserves for banks receiving them.) 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. 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. Any import duty paid to the French authorities is a deductible expense for calculating French income taxes. then the Fed. d. commercial bank, Assume all money is held in the form of currency. d. The Federal Reserve sells bonds on the open marke, If the Fed purchases government securities on the open market, the quantity of money and the nominal interest rate. How does it affect the money supply? Ceteris paribus, if the reserve requirement is decreased to 0.05, then excess reserves will . D. change the level of reserves it holds for banks. Road Warrior Corporation began operations early in the current year, building luxury motor homes. Given an inflationary gap, the Federal Reserve will use monetary policy to do what to interest rates and to aggregate demand? An increase in the reserve ratio: a. increases the money multiplier. A Burton marketing division in Lille, France, imports 200,000 chainsaws annually from the United States. The nominal interest rates falls. \text{General and administrative expenses} \ldots & 500,000 \\ When the Fed buys bonds in open-market operations, it _____ the money supply. \text{Total per category}&\text{?}&\text{?}&\text{? 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. D. The value o, If the nominal interest rate were to increase, then: a. money demand decreases and the price level increases. If the Fed sells government bonds, this will: A. d. equilibrium interest rate rises e. demand for money curve shifts leftward, 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}]. b. decrease, upward. All other trademarks and copyrights are the property of their respective owners. When the Federal Reserve Bank buys US Treasury bonds on the open market, then _______. The bank now sells $5,000 in securities to the Federal Reserve Bank in its, When the Federal Reserve purchases Treasury securities in the openmarket, A. the public starts buying houses and firms invest in anticipation of banks increasing their reserves. C. increase by $50 million. \text{Income tax expense} \ldots & 100,000 \\ 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. Suppose the Federal Reserve buys government securities from the non-bank public. Ceteris paribus, if the Fed reduces the reserve requirement ratio, then: A) The lending capacity of the banking system increases. B. decrease by $2.9 million. 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? 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). Fill in either rise/fall or increase/decrease. c) increases government spending and/or cuts taxes. The result is imperfect monitoring, which creates profit opportunities for speculators, who do not act as dealers but simply \text{Bad Debt Expense}&\text{\hspace{12pt}?}&\text{\hspace{12pt}? The Great Depression was caused by a steep decline in the money supply when the stock market crashed in 1929. 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 ______. We start by assuming that there is no reserve requirement or lending by the Central Bank. D. In open market operations, the Fed exchanges cash (money) for non-cash (bonds). \begin{array}{lcc} Ceteris paribus, if the Fed raises the reserve requirement, then: The lending capacity of the banking system decreases. A, Suppose that the Fed engages in an open-market purchase of $4,000 in securities from Bank A. a) decrease, downward b) decrease, upward c) inc. The text describes the theoretical developments of the assignment rules regarding fiscal and monetary policies and the respective roles in macroeconomics stabilisation. The velocity of money is a. the rate at which the Fed puts money into the economy. C. a traveler's check. 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. To decrease the money supply, the Fed can, raise the reserve requirement, raise the discount rate, or sell bonds. \text{Selling expenses} \ldots & 500,000 \text{Total per category}&\text{?}&\text{?}&\text{? d) setting interest r, Suppose the Federal Reserve sells $30 million worth of securities to a bank. Cause the money supply to increase, c. Not affect the money supply, d. Decrease the money multiplier. B. decrease by $200 million. The following is the past-due category information for outstanding receivable debt for 2019. If the economy is currently in monetary equilibrium, an increase in the money supply will a. Answer: Answer: B. 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). Increase government spending. b. sell government securities. Total deposits decrease. Assume the Federal Reserve decides to sell $25 billion worth of U.S. Treasury bonds i. Therefore the correct option is b: If the Federal Reserve increases the money supply, ceteris paribus, the rate of interest decreases. If the price of computers falls during a period when the average price level remains constant, which of the following has occurred? (a) money supply increases, investment increases, aggregate demand increases (b) money supply increases, the interest rate increases, If the Fed increases the money supply to bring down the federal funds rate: A. The key decision maker for general Federal Reserve policy is the: Free . b. D. Decrease the supply of money. Suppose the Federal Reserve engages in open-market operations. 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 %. If the fed increases the money supply, what will happen to each of the following (other things being equal)? Money is functioning as a standard of value if you: Compare the prices of running shoes online to those in a sporting goods store. The number of deposit dollars the banking system can create from $1 of excess reserves. - By buying and selling bonds through open-market operations - By buying and selling stocks - By setting the interes, Suppose the Fed decided to purchase $100 billion worth of government securities in the open market, directly deposited into the banking system. B. expansionary monetary policy by selling Treasury securities. }\\ The paper argues that the process of financialization has profoundly changed how capitalist economies operate. D. $100,000 in checkable-deposit liabilities and $30,000 in reserves. Hence C is the correct option. 3 . Total costs for the year (summarized alphabetically) were as follows: C. increases the bond price and decreases the interes, When the Fed increases the money supply, a. people spend less because they have more money. This problem has been solved! Assuming the economy is in the upward sloping portion of the eclectic aggregate supply curve, what should happen to the price level and output as a result of the Fed's action, ceteris paribus? C. the price level in the economy will rise, thus i. Sell Treasury bonds, bills, or notes on the bond market. It allows people to obtain more goods than they can using money. 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. b. \end{array} State tax on first $3,000: 1.5$ percent. 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%. The equilibrium price level and equilibrium output should both increase. d. the money supply is not likely to change. e. raise the reserve requirement. If the Open-Market Committee of the Federal Reserve sells securities, this action tends to: a. decrease the money supply. In addition, the company had six partially completed units in its factory at year-end. Bob, a college student looking for summer work. Lowers the cost of borrowing from the Fed, encouraging banks to make loans to the general public. Changing the reserve requirement is expensive for banks. When the Fed engages in open-market operations, the transactions are conducted by: a. the Open Market Desk at the Federal Reserve Bank of New York. Free . The aggregate demand curve should shift rightward. 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. When you've placed seven or more cards in the Don't know box, click "retry" to try those cards again. Government bond operations. d. sells U.S. Treasury bills to the federal government. b. sell government securities. a. 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. In terms of pricing, which of the following is not true for a monopolist? Suppose the bond market and the money market both start out in equilibrium and then the Federal Reserve increases the money supply. c) an open market sale. How will the lending capacity of the banking system be affected if the reserve requirement is 5 percent? The change in total revenue that results from a one-unit increase in quantity sold is: For a monopolist, after the first unit of output, marginal revenue is always: Suppose a monopoly firm produces software and can sell 10 items per month at a price of $50 each. Is it mandatory for banks to buy gov't bonds during open-market operations by the Central Bank? b. prices to increase by 3%. Suppose the Federal Reserve Bank buys Treasury securities. c. real income increases. To see how well you know the information, try the Quiz or Test activity. \text{Full manufacturing cost per chainsaw} & \text{\$175}\\ C. The value of the dollar will decrease in foreign exchange markets. If the Federal Reserve increases the nominal supply of money, all else equal: a. the demand for money increases. 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. Banks must hold more funds used for loans in reserve. How can you tell? 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. If the federal reserve increases the discount rate, the money supply will: a) decrease. Which action would the federal reserve rate take to expand the money supply and lower the equilibrium interest rate? b. Acting as fiscal agents for the Federal government. Explain your reasoning. 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? Wave Waters total liabilities on December 31, 2012, are $7,800. Suppose government spending increases. In order to decrease the money supply, the Fed can. When the Federal Reserve increases the discount-rate increases the discount rate as a part of a contractionary monetary policy, there is: A. 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. What impact would this action have on the economy? Then, ceteris paribus, bank reserves , currency in circulation and thus the monetary base will decreases etary base by increasing bank reserves only. Ceteris paribus, if the Fed raises the reserve requirement, then: The lending capacity of the banking system decreases. c. Fed sells bonds. b) running the check-clearing process. Suppose the Federal Reserve purchases mortgage-backed securities (MBS). If there is a recession, the Fed would most likely a. encourage banks to provide loans by. Expansionary fiscal policy: a) decreases the money supply and raises interest rates. The difference in potential money creation when the Bank of Canada buys government securities from the chartered banks rather than from the public is due to the fact that a. excess reserves are larger when the Bank of Canada buys government securities from the chartered banks. The Fed sells Treasury bills in the open market b. d. has a contractionary effect on the money supply. B ) bond yields will fall 2) A negative output gap indicates that A) nominal GDP is below real GDP. Buy Treasury bonds, bills, or notes on the bond market. A) remains unchanged; decreases B) increases; decreases C) decreases; increases D) increases; remains unchanged E) rem, A decrease in the discount rate: a. Decreases the money supply, b. Could the Federal Reserve continue to carry out open market operations? c. reduce the reserve requirement. \text{Gross Margin}&\text{\hspace{5pt}1,369,250}&\text{\hspace{5pt}1,369,250}\\ 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. c. an increase in the quantity of money demanded. B. Demand; marginal revenue and marginal cost. Consider an open market purchase by the Fed of $16 billion of Treasury bonds. B. fewer reserves and inc, Suppose you read in the paper that the Fed plans to reduce money supply. When the Federal Reserve System buys government securities on the open market: A. the money supply will decrease. Consider an expansionary open market operation. The Federal Reserve (the Fed), the central bank of the United States, has a Congressional mandate to promote maximum employment and price stability. $$ Multiple Choice . What types of accounts are listed on the post-closing trial balance? If the Fed uses open-market operations, should it buy or sell government securities? Above equilibrium, this results in excess supply. **Instructions** In order to maintain price stability, the Federal Reserve has decided to engage in monetary restraint. a. decrease, downward. Ceteris paribus, an increase in _______ will cause an increase in ______. 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. Name the three tools of monetary policy that the Federal Reserve System can do to combat inflation. Price charged is always less than marginal revenue. The purchase and sale of government bonds by the Fed for the purpose of altering bank reserves is referred to as: Members of the Federal Reserve Board of Governors are appointed for one fourteen-year term so that they: Make their decisions based on economic, rather than political, considerations. \end{array} C. excess reserves at commercial banks will increase. Decrease the discount rate. b. means by which the Fed supplies the economy with currency. A change in government spending, a change in taxes, and monetary policy. B) means by which the Fed acts as the government's banker. When the Fed conducts open market operations, the Fed buys and sells government securities to: a. the private sector. D) Required reserves decrease. The Fed funds market is the market where banks a) buy and sell bonds to the Federal Reserve. b. lowers inflation but raises unemploym, Assume the demand for money curve is stationary and the Fed increases the money supply. The new reserve requirement exemption amount and low reserve tranche will be effective for all depository institutions beginning January 1, 2022. Previous question Next question Of these, 43 were sold for $\$ 105,000$ each and two remain in finished goods inventory. Suppose the banks in the Federal Reserve System have $100 million in transactions accounts and the reserve requirement is 0.10. \text{Total uncollectible? On March 5 and 6, I surveyed over 500 consumers about their concerns about COVID-19, awareness of the Fed's . c. Purchase government bonds on the open market. Find the taxable wages. That reduces liquidity and slows economic activity. Which of the following functions does the Fed perform? the process of selling Fed-issued IOUs between banks. ceteris paribus, if the fed raises the reserve requirement, then: Posted on . B. decreases the money supply, which leads to increased interest rates and a rise in investment spending. It needs to balance economic growth. (A) How will M1 be affected initially? The change is negative it means that excess reserve falls by -100000000 or 100 million. The difference between price and average total cost multiplied by the quantity sold. &\textbf{Original Categories}&\textbf{Categories Change}\\[5pt] }\\ b) borrow more from the Fed and lend less to the public. Ceteris paribus, if the reserve requirement is decreased to 0.07, then excess reserves will increase by: $3 million. Although it may feel like you're playing a game, your brain is still making more connections with the information to help you out. B. increase the supply of bonds, decrease bond prices, and increase interest rates. FROM THE STUDY SET Ceteris paribus, if the Fed raises the reserve requirement, then Most studied answer the lending capacity of the banking system decreases. Assume that the reserve requirement is 20%. When the sellers deposit their checks in their bank accounts, their reserves will increase due to the deposits made. The U.S. Treasury c. The U.S. Mint d. The federal government And involves: a. Quantitative easing b. Personal exemptions of$1,500. d. the price level decreases. b. sell bonds, thus driving down the interest rate. This causes excess reserves to, the money supply to, and the money multiplier to. d. prices to remain constant. It involves the direct exchange of one good or service for another. An open market operation decreases the money supply when the Federal Reserve a. sells bonds to banks, which increases bank reserves. Enter the email address you signed up with and we'll email you a reset link. Suppose the Federal Reserve buys government securities from the nonbank public. When aggregate demand equals aggregate supply at the average price level. d) Lowering the real interest rate. A stock person who is laid off by a department store because retail sales across the country have decreased is _______ unemployed. [Solved] Ceteris paribus,if the Fed raises the reserve requirement,then: A) The money multiplier increases. 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? 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 ______. The long-term real interest rate _____. Our experts can answer your tough homework and study questions. a. 1) Ceteris paribus, if bond prices rise, then A) the Federal reserve must be pursuing contractionary monetary policy. Keynes viewed the economy as inherently unstable and suggested that during a recession policy makers should: Cut taxes and/or increase government spending. \text{Net Credit Sales}&\text{\$\hspace{1pt}1,454,500}&\text{\$\hspace{1pt}1,454,500}\\ b) increase. C. influence the federal funds rate. A. The aggregate demand curve should shift rightward. 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