Then, ceteris paribus, bank reserves , currency in circulation and thus the monetary base will decreases etary base by increasing bank reserves only. Patricia's nominal annual income in 2009 was $60,000. Suppose the banks in the Federal Reserve System have $400 million in transactions accounts and the reserve requirement is 0.10. When you've placed seven or more cards in the Don't know box, click "retry" to try those cards again. Martin takes $150 out of his checking account and hides it in his house as cash. b. b. 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. the money supply is likely to increase. Banks now have more money to loan since they are required to hold less in reserve. Working Paper No. D. $100,000 in checkable-deposit liabilities and $30,000 in reserves. C. $120,000 in checkable-deposit liabilities and $32,000 in reserves. Professor Williams tutors her next-door neighbor's son in economics. Banks must hold more funds used for loans in reserve. Instead of paying her for this service,the neighbor washes the professor's car. C) buying and selling of government s. In carrying out open market operations, the Federal Reserve usually buys and sells U.S. Treasury securities. $$ Monetary policy can help the Federal Reserve System to protect, influence, and increase benefits to the economy. B. purchases government bonds to decrease the money supply. Which of the following is likely to occur if people reduce their spending because they are worried about an economic downturn, ceteris paribus? Is this an example of fiscal policy or monetary policy? c. reduce the reserve requirement. If the Fed conducts an open-market sale, bank reserves _ and the money supply is likely to _. d) means by which the Fed supplies the, Suppose the Fed wishes to use monetary policy to close an expansionary gap. C. increase by $50 million. d. raise the treasury bill rate. Assume that for an individual firm MC = AVC at $6 and MC = ATC at $10 and MC = price at $12 then the firm will be operating: The demand curve for the monopoly and the market are the same, it has no direct competitors, and it can use its market power to charge higher prices than a competitive firm. U.S. goods are less expensive for Americans so they buy fewer imports and more domestic goods. 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? copyright 2003-2023 Homework.Study.com. Over the 30-year life of the. Suppose that the sellers of government securities redeem these checks drawn on the New York Fed for currency. Cause an excess demand for money and a decrease in the rate of interest. Changing the reserve requirement is expensive for banks. d) setting interest r, Suppose the Federal Reserve sells $30 million worth of securities to a bank. D. Transaction demand for, To ease monetary policy to fight a recession, the Federal Reserve would ____. \begin{array}{lcc} If the Federal Reserve increases the discount rate: a. the federal funds rate must decrease. 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%. d. The money supply should increase when _ a. What happens to interest rates? 2. \text{French import duty} & \text{20\\\%}\\ c. increase, down. The VOC was also the first recorded joint-stock company to get a fixed capital stock. 2) If, If the Fed increases the supply of money in the market, bond prices will and interest rates will. 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? 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. b. increase the supply of bonds, thus driving down the interest rate. Explore how the Federal Reserve uses monetary policies to control the money supply and affect interest rates in an effort to prevent another depression from occuring. Make sure you say increase or decrease/buy or sell. Sell Treasury bonds, bills, or notes on the bond market. The Dutch East India Company (also known by the abbreviation "VOC" in Dutch) was the first publicly listed company ever to pay regular dividends. See our Suppose the economy is initially experiencing an inflationary gap. \textbf{Comparative Income Statements}\\ Suppose the Federal Reserve decided to sell $35 billion worth of government securities in the open market. If a market basket of goods cost $100 in the base year and $110 in a later year, then average prices have increased by: Keynes and classical economists disagree about whether: Government intervention should be used to correct business cycles. b. The buying and selling of government securities by the Fed is known as: A. open market operations. A change in government spending, a change in taxes, and monetary policy. When the economy overheats, the government sometimes cools it down with higher taxes, spending reductions, and less money. c) borrow less from the Fed and, If Federal Reserve decides to decrease the money supply in the United States, what will happen to: 1) the interest rate 2) the level of investment spending in America 3) the level of GDP 4) the level of money demand 3) the U.S interest rate 4) the level o. 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%. \text{General and Administrative Expense}&\text{\hspace{12pt}425,000}&\text{\hspace{12pt}425,000}\\ b) an increase in the money supply and a decrease in the interest rate. It creates money, it creates a transactions-account balance for the borrower, and the money supply increases. How does it affect the money supply? 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). Increase government spending. 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. The aggregate demand curve should shift rightward. Money is functioning as a standard of value if you: Compare the prices of running shoes online to those in a sporting goods store. d. lend more reserves to commercial 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. means by which the Fed acts as the government's banker. 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. Which action would the federal reserve rate take to expand the money supply and lower the equilibrium interest rate? Why does an open market sale of Treasury securities by the federal Reser, Suppose the Federal Reserve wanted to increase the money supply: it could a. b. sell government securities. c. an increase in the demand for bonds and a rise in bond prices. c. it borrows money, Consider how the following scenario would affect the money supply and, as a result, interest rates in the economy. b. an increase in the demand for money balances. **Instructions** (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.) Suppose the Federal Reserve engages in open-market operations. On March 5 and 6, I surveyed over 500 consumers about their concerns about COVID-19, awareness of the Fed's . The price level to decrease c. Unemployment to decrease d. Investment to decrease. 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've accidentally put the card in the wrong box, just click on the card to take it out of the box. If a bank does not have enough reserves, it can. Which of the following is NOT a possible source of last-minute reserves for a private bank? A, Suppose that the Fed engages in an open-market purchase of $4,000 in securities from Bank A. Suppose the Federal Reserve undertakes an open market purchase of government bonds. 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. Then the bank can make new loans in the amount of: Initially a bank has a minimum reserve requirement of 15 percent and no excess reserves. Now suppose the Fed conducts an open market purchase of government bonds equal to $1, Fiscal policy is conducted by: a. B. decrease by $2.9 million. The discount rate is the interest rate charged by, the Federal Reserve when it lends money to private banks, Ceteris paribus, if the Fed raises the reserve requirement, then, the lending capacity of the banking system decreases, If the economy is inflationary, the Fed would most likely, encourage banks to provide loans by buying government securities, if the economy is recessionary, the Fed would most likely, encourage banks to provide loans by selling government securities, Alexander Holmes, Barbara Illowsky, Susan Dean, Claudia Bienias Gilbertson, Debra Gentene, Mark W Lehman, Statistical Techniques in Business and Economics, Douglas A. Lind, Samuel A. Wathen, William G. Marchal, David R. Anderson, Dennis J. Sweeney, James J Cochran, Jeffrey D. Camm, Thomas A. Williams, Elegant Linens uses the balance sheet aging method to account for uncollectible debt on Sell government securities Ceteris paribus, if the Fed reduces the reserve requirement, then the lending capacity of the banking system increases Ceteris paribus, if the Fed reduces the discount rate, then the incentive to borrow funds increases a. mortgages; Bank of America b. government securities; New York Fed c. government securities; Federal Reserve Bank of Florida d. Mortgages; Federal Reserve. The money supply decreases. 1015. d) Lowering the real interest rate. 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. B) bond yields will fall C) bond yields will increase as well. E.the Phillips curve will shift down. Suppose the Federal Reserve buys government securities from the nonbank public. c. Fed sells bonds. d. sells U.S. Treasury bills to the federal government. Lowers the cost of borrowing from the Fed, encouraging banks to make loans to the general public. \text{Net Income (Loss)}&\text{\hspace{12pt}?}&\text{\hspace{12pt}? b. Makers, but perfectly competitive firms are price takers. 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. D. In open market operations, the Fed exchanges cash (money) for non-cash (bonds). Total costs for the year (summarized alphabetically) were as follows: b. The Federal Reserve carries out open-market operations, purchasing $1 million worth of bonds from banks. 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? Suppose the banks in the Federal Reserve System have $100 million in transactions accounts and the reserve requirement is 0.10. \begin{array}{c} Decrease the demand for money. If the federal reserve increases the discount rate, the money supply will: a) decrease. It improves aggregate demand, thus increasing the country's GDP. 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. d) increases government spending and/or cuts taxes. b. engage in open market purchases of government securities. Officials indicated an aggressive path ahead, with rate rises coming at each of the . A perfectly competitive firm is a price taker because: It has no control over the market price of its product. Price falls to the level of minimum average total cost. Is this part of expansionary or contractionary fiscal or monetary policy? Consider an open market purchase by the Fed of $16 billion of Treasury bonds. 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 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. C. where a bank borrows reserves or bo, Open market operations are a) buying and selling of Federal Reserve Notes in the open market. \end{array} $$ When the Federal Reserve increases the discount rate, banks will borrow A. fewer reserves and decrease lending. \text{Total per category}&\text{?}&\text{?}&\text{? If the Fed uses open-market operations, should it buy or sell government securities? You'll get a detailed solution from a subject matter expert that helps you learn core concepts. How can you tell? b. buys bonds from banks, which increases bank reserves. Ceteris paribus, if the Fed raises the reserve requirement, then: The lending capacity of the banking system decreases. 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. copyright 2003-2023 Homework.Study.com. 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. 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. b) borrow more from the Fed and lend less to the public. If the Fed sells $5 million worth of government securities to the public, what will be the change in the money supply? Suppose the Federal Reserve buys government securities from the non-bank public. If Bank A and all the other banks use reserves to purchase only securities, what will happen to deposits in the banking system and how much does it expand? When the Fed buys bonds in open-market operations, it _____ the money supply. 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. c). The new reserve requirement exemption amount and low reserve tranche will be effective for all depository institutions beginning January 1, 2022. C. treasury bond operations. Answer: Answer: B. FROM THE STUDY SET Which of the following could cause a recession? To see how well you know the information, try the Quiz or Test activity. Which of the following lends reserves to private banks? a. b. Suppose during the same period average prices in the economy rose by 150 percent.The paintings owner, relative to those who do not own paintings, experienced a: Lower real wealth as a result of the wealth effect. b. it will be easier to obtain loans at commercial banks. Was there a profit or a loss for the year ended December 31, 2012? A perfectly competitive firm currently sells 30,000 cartons of eggs at $1.25 each. 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). b. will cause banks to make more loans. The required reserve. Fill in either rise/fall or increase/decrease. b. means by which the Fed supplies the economy with currency. increase; decrease decrease; decrease increase; increase decrease; increas. 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. $$ Some terms may not be used. The Fed sells Treasury bills in the open market b. A. c. buy bonds, thus driving up the interest rate. 1. c. state and local government agencies only. Suppose government spending increases. Monetary policy refers to the central bank's actions to the control of money supply in the economy. a. decrease, downward. How will the lending capacity of the banking system be affected if the reserve requirement is 5 percent? This action increased the money supply by $2 million. What effect will this open market operation have on demand deposits and M1? 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. In addition, the company had six partially completed units in its factory at year-end. b. the interest rate increases c. the Federal Reserve purchases bonds. If the Fed raises the reserve requirement, the money supply _____. Decrease the discount rate. When the Federal Reserve sells bonds as a part of a contractionary monetary policy, there is: A. 16. When the Fed raises the reserve requirement, it's executing contractionary policy. Match the terms with definitions. 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. B. taxes. Cause the money supply to increase, c. Not affect the money supply, d. Decrease the money multiplier. a) decrease, downward b) decrease, upward c) inc. 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. Assume that the currency-deposit ratio is 0.5. Your email address is only used to allow you to reset your password. The Great Depression was caused by a steep decline in the money supply when the stock market crashed in 1929. The difference between price and average total cost multiplied by the quantity sold. Price charged is always less than marginal revenue. Issuanceofstock.Cashdividends.Balance,December31,2012.$3ParCommonStock$375120AdditionalPaid-inCapital$2,225240RetainedEarnings$4,200990(69)AccumulatedOtherComprehensiveIncome$123TotalShareholdersEquity$6,812. Then the bank has excess reserves of: Suppose a bank has $1,000,000 in deposits, a minimum reserve requirement of 15 percent, and bank reserves of $170,000. We develop a model of price formation in a dealership market where monitoring of the information flow requires costly effort. An increase in the money supply, When the Federal Reserve increases the discount rate as a part of a contractionary monetary policy, there is: a) a decrease in the money supply and a decrease in the interest rate. Of these, 43 were sold for $\$ 105,000$ each and two remain in finished goods inventory. "The federal bank can use open market operations as an instrument of monetary policy to manipulate interest rates and control supply of money." Raises the cost of borrowing from the Fed, discouraging banks from ma, If the Federal Reserve System buys government securities from commercial banks and the public: A. commercial bank reserves will decline B. commercial bank reserves will be unaffected C. it will be easier to obtain loans at commercial banks D. the money su, Suppose that the Fed purchases from bank A some bonds in the open market and that, before the sale of bonds, bank A had no excess reserves. An open market operation is ____?A. Suppose the Federal Reserve wishes to use monetary policy to close an expansionary gap. c. Purchase government bonds on the open market. Make sure to remember your password. 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%. This is an example of which type of unemployment? b. sell government securities. The Fed lowers the federal funds rate. The current account deficit will increase. The four components of aggregate demand are: Consumption, investment, government spending, and net exports. B. federal bond operations. While those goals were articulated in 1977, 2 the approach and tools used to implement those objectives have changed over time. Ceteris paribus, if the Fed reduces the reserve requirement, then: A. During the last recession (2008-09. If the Fed wants to raise short-term interest rates, it should a. act to increase the money supply. Suppose the banks in the Federal Reserve System have $400 million in transactions accounts and the reserve requirement is 0.10. A. Assume the reserve requirement is 5%. d. the average number of times per year a dollar is spent. Any import duty paid to the French authorities is a deductible expense for calculating French income taxes. \text{Cost of Goods Sold}&\underline{\text{\hspace{19pt}85,250}}&\underline{\text{\hspace{19pt}85,250}}\\ Name the three tools of monetary policy that the Federal Reserve System can do to combat unemployment/recession. If the Fed decreases the money supply, GDP ________. Decrease by $100, Suppose the Federal Reserve buys 3 treasury bonds from the public. Our experts can answer your tough homework and study questions. A combination of flexible rules and limited discretion. c. the Federal Reserve System. d. velocity increases. 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. are the minimum amount of reserves a bank is required to hold. It sells $20 billion in U.S. securities. D. change the level of reserves it holds for banks. d. commercial bank, Assume all money is held in the form of currency. By the end of the year, over $40 billion of wealth had vanished. Use these flashcards to help memorize information. C. Controlling the supply of money. a. 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. a. &\textbf{0-30 days}&\textbf{31-90 days}&\textbf{Over 90 days}\\ If you forget it there is no way for StudyStack Fill in either rise/fall or increase/decrease. 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}]. $$ An increase in the reserve ratio: a. increases the money multiplier. B. decreases the money supply, which leads to increased interest rates and a rise in investment spending. If the Fed is using open-market operations, An open market operation is a purchase or sale of ___ by the ___ in the open market. D. interest rates will increase. If the Federal Reserve System buys government securities from commercial banks and the public: a. the money supply will contract. a) increases; decreases, b) decreases; increases, c) decreases; decreases, d) increases; increases.
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