When the Federal Reserve increases the discount rate, banks will borrow A. fewer reserves and decrease lending. Ceteris paribus, if the Fed raises the reserve requirement, then: The lending capacity of the banking system decreases. 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. We start by assuming that there is no reserve requirement or lending by the Central Bank. The Fed sells Treasury bills in the open market b. c) not change. c. real income increases. As a result, the money supply will: a. increase by $1 billion. If the Federal Reserve System buys government securities from commercial banks and the public: a. the money supply will contract. b. buys or sells foreign currency. View Answer. The central bank uses various monetary tools such as open market operations, the Fed's fund rate, and reserve requirements to achieve its goals. 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. Let's say the Fed had raised interest rates by 1% before the family got a loan, and the interest rate offered by banks for a $300,000 home mortgage loan rose to 4.5%. Q01 . An expansionary fiscal policy is when a. the government lowers spending and raises taxes. c. first purchase, then sell, government securities. B. \text{Variable manufacturing cost per chainsaw} & \text{\$100}\\ At what price per share did Wave Water issue common stock during 2012? If the Federal Reserve increases the discount rate: a. the federal funds rate must decrease. 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 Federal Open Market Committee is responsible for: a) reducing the Fed's reliance on open market operations. c. an increase in the quantity of money demanded. State tax on first $3,000: 1.5$ percent. 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). Michael Haines 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). "The federal bank can use open market operations as an instrument of monetary policy to manipulate interest rates and control supply of money." Our experts can answer your tough homework and study questions. Aggregate demand will decrease or shift to the left. B. purchases government bonds to decrease the money supply. Of these, 43 were sold for $\$ 105,000$ each and two remain in finished goods inventory. b. decrease, upward. The Federal Reserve (or Fed) often executes its policy by selling or buying U.S. government securities in the open market, which in turn influences the quantity of real money balances. The capital account surplus will increase. If the Federal Reserve decreases money supply, then a) The money supply curve will shift up and interest rates will increase b) The money supply curve will shift up and interest rates will decrease. D. $100,000 in checkable-deposit liabilities and $30,000 in reserves. d. rate of interest increases.. Explain your reasoning. The company has marketing divisions throughout the world. 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. 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. 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. The U.S. Treasury c. The U.S. Mint d. The federal government And involves: a. Quantitative easing b. }\\ It transfers money from spenders to savers. To see how well you know the information, try the Quiz or Test activity. Assuming this, how is the Fed likely to respond to fiscal stimulus if the economy is nearing full employment? 1. a. Facility location decisions are significant for an organization because:? d. The money supply should increase when _ a. What impact would this action have on the economy? C. increase by $290 million. $$ D. Decrease the supply of money. A decrease in the reserve ratio will: a. How does it affect the money supply? a. B. decreases the money supply, which leads to increased interest rates and a rise in investment spending. b. raises the cost of borrowing from the Fed, discouraging banks from making loans, When the Fed conducts open-market purchases, a. it buys Treasury securities, which increases the money supply. Use the model of aggregate demand and aggregate supply to illustrate the impact of this change in the interest rate on output and the price level in the short run. to send you a reset link. $$ When the Federal Reserve sells bonds as a part of a contractionary monetary policy, there is: A. 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. $$ ceteris paribus, if the fed raises the reserve requirement, then: Posted on . Using the oversimplified money multiplier, the money suppl, Assume the reserve requirement is 10%. b. prices to increase by 3%. Fill in either rise/fall or increase/decrease. Ceteris paribus, if the Fed raises the reserve requirement, then: e The lending capacity of the banking system decreases. 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 ______. If they have it, does that mean it exists already ? 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. 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. Working Paper No. 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. Sell Treasury bonds, bills, or notes on the bond market. 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 ______. Currency, transactions accounts, and traveler's checks. Multiple Choice . The Fed lowers the federal funds 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. Suppose that the sellers of government securities deposit the checks drawn on th. 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). The supply of money increases when: a. the value of money increases. 16. Compute the following for the current year: b. it will be easier to obtain loans at commercial banks. Road Warrior Corporation began operations early in the current year, building luxury motor homes. Our experts can answer your tough homework and study questions. a. mortgages; Bank of America b. government securities; New York Fed c. government securities; Federal Reserve Bank of Florida d. Mortgages; Federal Reserve. These actions can be classified as expansionary or contractionary, depending on the prevailing market conditions. 41. Assume the reserve requirement is 5%. D. Describe the categories change effect on net income and accounts receivable. b. Ceteris paribus, if the Fed raises the reserve requirement, then: The money multiplier increases. Personal exemptions of$1,500. 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. Make sure you say increase or decrease/buy or sell. 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? d. the demand for money. Explain the statement. Use these flashcards to help memorize information. Figure 14.10c depicts the aggregate investment function of an economy. 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. \text{Total uncollectible? To decrease the money supply the Fed can: Raise the reserve requirement, raise the discount rate, or sell bonds. The Fed lowers the federal funds rate. \text{Total per category}&\text{?}&\text{?}&\text{? The various quantities of output that all market participants are willing and able to buy at alternative price levels in a given time period is: Ceteris paribus, based on the aggregate demand curve, if the price level _______ the quantity of real output _______ increases. }\\ Which of the following is NOT a possible source of last-minute reserves for a private bank? In terms of pricing, which of the following is not true for a monopolist? Makers, but perfectly competitive firms are price takers. If the Fed raises the reserve requirement, the money supply _____. We develop a model of price formation in a dealership market where monitoring of the information flow requires costly effort. Consider an expansionary open market operation. See our Issuanceofstock.Cashdividends.Balance,December31,2012.$3ParCommonStock$375120AdditionalPaid-inCapital$2,225240RetainedEarnings$4,200990(69)AccumulatedOtherComprehensiveIncome$123TotalShareholdersEquity$6,812. Annual gross pay of $18,200. 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. All other trademarks and copyrights are the property of their respective owners. Name the three tools of monetary policy that the Federal Reserve System can do to combat inflation. c. prices to increase by 2%. b. an increase in the demand for money balances. 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. b. buys bonds from banks, which increases bank reserves. 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. 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 market interest rates rise, the selling price of existing bonds in the market will, ceteris paribus, . A perfectly competitive firm currently sells 30,000 cartons of eggs at $1.25 each. U.S.incometaxrateontheU.S.divisionsoperatingincomeFrenchincometaxrateontheFrenchdivisionsoperatingincomeFrenchimportdutyVariablemanufacturingcostperchainsawFullmanufacturingcostperchainsawSellingprice(netofmarketinganddistributioncosts)inFrance40%45%20%$100$175$300. D. Transaction demand for, To ease monetary policy to fight a recession, the Federal Reserve would ____. \text{Percent uncollectible}&\text{8\\\%}&\text{17\\\%}&\text{31\\\%}\\ They will remain unchanged. What are some basic monetary policy tools used by the Fed? Suppose commercial banks use excess reserves to buy government bonds from the public. \begin{array}{c} The Federal Reserve conducts open market operations when it wants to [{Blank}]? Given an inflationary gap, the Federal Reserve will use monetary policy to do what to interest rates and to aggregate demand? According to macroeconomists, a goal for the economy is a: When the unemployment rate falls to the full-employment level: There is increased concern about inflation. What is meant by open market operations? Changing the reserve requirement is expensive for banks. \text{Total Expenses}&\text{\hspace{12pt}?}&\text{\hspace{12pt}? Although it may feel like you're playing a game, your brain is still making more connections with the information to help you out. Could the Federal Reserve continue to carry out open market operations? D. In open market operations, the Fed exchanges cash (money) for non-cash (bonds). If the Fed purchases $10 million in government securities, then wh. See Answer 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. Previous question Next question B) means by which the Fed acts as the government's banker. C. The nominal interest rate does not change. c. means by which the Fed acts as the government's banker. If the Fed uses open-market operations, should it buy or sell government securities? The number of deposit dollars the banking system can create from $1 of excess reserves. The Federal Reserve Bank b. (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.) Then, ceteris paribus, bank reserves , currency in circulation and thus the monetary base will decreases etary base by increasing bank reserves only. A sale of treasury bills by the federal reserve _____ interest rates and _____ the money supply. Holding the deposits or reserves of commercial banks. Aggregate supply will increase or shift to the right. 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. &\textbf{Original Categories}&\textbf{Categories Change}\\[5pt] d. the price level decreases. b. lowers inflation but raises unemploym, Assume the demand for money curve is stationary and the Fed increases the money supply. b. it buys Treasury securities, which decreases the money supply. b. engage in open market purchases of government securities. If the Fed decides to engage in an open market operation to increase the money supply, what will it do? a. decrease, downward. 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? B. buy bonds lowering the price of bonds and driving up the interest rates. The aggregate demand curve is downward sloping because, ceteris paribus: People are willing and able to buy more goods and services at lower average prices. d. buying and selling of government, 1) Open market operations are the: A) buying and selling of Federal Reserve Notes in the open market. \end{array} Now suppose the. Examples of money are: A. a check. 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. \end{array} The velocity of money is a. the rate at which the Fed puts money into the economy. You would need to create a new account. a. The result is that people a. increase the supply of bonds, thus driving up the interest rate. \text{Selling expenses} \ldots & 500,000 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. Transcribed Image Text: Question Now we introduce banks that will act as liquidity providers in the economy. The nominal interest rates falls. the process of selling Fed-issued IOUs between banks. Is this an example of fiscal policy or monetary policy? What is the reserve-deposit ratio? \end{array} According to the monetarist view, the aggregate supply curve is: Vertical at the natural rate of unemployment. When you need a break, try one of the other activities listed below the flashcards like Matching, Snowman, or Hungry Bug. Total reserves increase.B. c. the money supply divided by nominal GDP. Suppose the banks in the Federal Reserve System have $400 million in transactions accounts and the reserve requirement is 0.10. b) increases the money supply and lowers interest rates. Which of the following is NOT a basic monetary policy tool used by the Fed? If the Federal Reserve increases the money supply, ceteris paribus, the: a. rate of interest is unaffected. a. increases, rises b. increases, falls c. decreases, falls d. decreases, does not change e. . If the Federal Reserve increases the nominal supply of money, all else equal: a. the demand for money increases. b) increases, so the money supply decreases. In the short run, the quantity of money demanded [{Blank}] and the nominal interest rate [{Blank}]. b. sell government securities. D. decrease, Assume that the Federal Reserve establishes a minimum reserve requirement of 12.5%. Suppose the Federal Reserve buys 100 mortgage-backed securities in the open market. B. influence the discount rate. In order to decrease the money supply, the Fed can. c. buys or sells existing U.S. Treasury bills. Explain. This problem has been solved! Cause the money supply to decrease, b. B. expansionary monetary policy by selling Treasury securities. A) increases; supply. 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 ______. C. The lending capacity of the banking system increases. B. decisions by the Fed to increase or decrease the money multiplier. 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? 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? Price falls to the level of minimum average total cost. 26. All rights reserved. D) there is no effect on bond yields. When the Fed raises the reserve requirement, it's executing contractionary policy. b. sell government securities. The following is the past-due category information for outstanding receivable debt for 2019. Terms of Service. What is Wave Waters debt ratio on this date? a. increase the supply of bonds, thus driving up the interest rate. C. the Fed is seeking, All else equal, if the Federal Reserve decreases the money supply, interest rates will _ and the dollar will _ against other currencies. 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? 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? If the Fed sells $1 million of government bonds, what is the effect on the economy's reserves and money supply? \text{Net Credit Sales}&\text{\$\hspace{1pt}1,454,500}&\text{\$\hspace{1pt}1,454,500}\\ b. This causes excess reserves to, the money supply to, and the money multiplier to. The reserve ratio is 20%. One HEADLINE article in the text has the title "Fed cuts key interest rate half-point to 1 percent." \text{Net Income (Loss)}&\text{\hspace{12pt}?}&\text{\hspace{12pt}? 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. travis etienne 2022 fantasy,