2. \text{General and Administrative Expense}&\text{\hspace{12pt}425,000}&\text{\hspace{12pt}425,000}\\ 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. When the Federal Reserve sells bonds as a part of a contractionary monetary policy, there is: A. The money supply increases. The sale of bonds to the Fed by the public C. Increases in banks' excess reserves D. Increases in. b. it buys Treasury securities, which decreases the money supply. 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. b) increases, so the money supply decreases. If the Fed uses open-market operations, should it buy or sell government securities? If the banking system has a required reserve ratio of 20 percent, then the money multiplier is: It is more likely to occur if people lose faith in a nation's currency. b. decrease the money supply and decrease aggregate demand. Increase the reserve requirement C. Buy government securities D. Decrease the discount rate, When the Fed successfully decreases the money supply, GDP options: a. increases because the resulting increase in the interest rate leads to a decrease in investment b. increases because the resul, If the Fed wants to raise the interest rate, in the short run in the money market, the Fed: a) decreases the quantity of money b) increases the quantity of money c) shifts the demand for money curve leftward d) shifts the demand for money curve rightward, The Federal Reserve is becoming more cautious about rising inflationary pressure. raise the discount rate. D. The value o, If the nominal interest rate were to increase, then: a. money demand decreases and the price level increases. b. an increase in the demand for money balances. Also assume that banks do not hold excess reserves and there is no cash held by the public. An expansionary fiscal policy is when a. the government lowers spending and raises taxes. d. The Federal Reserve sells bonds on the open market. Interest rates typically rise in a recession because the demand for money increases when real income falls. Open market operations c. Printing mo. The new reserve requirement exemption amount and low reserve tranche will be effective for all depository institutions beginning January 1, 2022. Assume that banks use all funds except required, 13. To manage earnings more favorably, Elegant Linens considers changing the past-due categories as follows. Inflation rate _____. B. decrease by $200 million. A) increases; supply. c. reduce the reserve requirement. C. decrease interest rates. The Fed sells Treasury bills in the open market b. How does the Federal Reserve regulate the money supply? Assume that the currency-deposit ratio is 0.5. c. Decrease interest rates. The answer is b. rate of interest decreases. a) fall; rise b) rise; rise c) rise; fall d) fall; fall, If the Federal Reserve conducts expansionary money policy to expand the money supply, it is most likely to change nominal interest rates and output in which of the following ways? A. Perform open market purchases of securities. a. increases, rises b. increases, falls c. decreases, falls d. decreases, does not change e. . This causes excess reserves to, the money supply to, and the money multiplier to. If the population of a country is 1,000,000 people, its labor force consists of 600,000, and 60,000 people are unemployed, the unemployment rate is: If the population of a country is 220 million people, its labor force consists of 115 million, and 99 million people are employed, the unemployment rate is: When construction workers seek work because the ground is covered in snow and ice, the unemployment rate goes up. d. raise the treasury bill rate. b. C. a traveler's check. The required reserve ratio is 16%. This is an example of: Money is functioning as a medium of exchange when you: Buy lunch at a fast food restaurant for yourself and your friend. 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. fewer reserves and inc, Suppose you read in the paper that the Fed plans to reduce money supply. c. buy bonds, thus driving up the interest rate. State tax on first $3,000: 1.5$ percent. The aggregate demand curve should shift rightward. 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. 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). a. CBDC Next-Level: A New Architecture for Financial "Super-Stability" by. E. discount rate operations. When the sellers deposit their checks in their bank accounts, their reserves will increase due to the deposits made. The result is imperfect monitoring, which creates profit opportunities for speculators, who do not act as dealers but simply Key Points. 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%. - 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. receivables. D. $100,000 in checkable-deposit liabilities and $30,000 in reserves. D. open bonds operations. They will increase. Price falls to the level of minimum average total cost. b. the same thing as the long-term growth rate of the money supply. \end{array} Annual gross pay of $18,200. Suppose that the sellers of government securities deposit the checks drawn on the New York Fed into their bank account. What impact would this action have on the economy? Multiple Choice . 3 . Suppose the economy is initially experiencing an inflationary gap. a. monetary base b. Changing the reserve requirement is expensive for banks. a) Describe what initially happens to the reserves of bank B. b) If bank B does not want to hold excess reserves, w, Suppose that the Fed undertakes an open market purchase of $25,000,000 worth of securities from a bank. Use these flashcards to help memorize information. c. the money supply divided by nominal GDP. c. first purchase, then sell, government securities. Figure 14.10c depicts the aggregate investment function of an economy. Personal exemptions of$1,500. The number and relative size of firms in an industry. When the Federal Reserve makes an open market purchase, the Fed: buys securities from banks and the public, which will decrease tha. Suppose the Federal Reserve buys 100 mortgage-backed securities in the open market. 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 %. d. rate of interest increases.. \text{Total per category}&\text{?}&\text{?}&\text{? 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. Total costs for the year (summarized alphabetically) were as follows: If the Fed wants to increase the money supply through an open market operation, it will a. purchase government securities. C. increase by $50 million. Assume the reserve requirement is 5%. Match the terms with definitions. \text{Total uncollectible? Assume the Federal Reserve decides to sell $25 billion worth of U.S. Treasury bonds i. A. B. 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. d. has a contractionary effect on the money supply. Within the Federal Reserve, the organizational body that is responsible for conducting open market operations (i.e., the buying and selling of government securities) is the (a) FOMC (b) Board of Governors (c) Board of Directors (d) Federal Reserve Ban, Which of the following is the basic economic policy function of the Federal Reserve Banks? (a) 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. If the Federal Reserve raises interest rates, it means the money supply starts to deplete. Free . If the Fed sells $1 million of government bonds, what is the effect on the economy s reserves and money supply? b. 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. 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. Which of the following functions does the Fed perform? c) overseeing the buying and selling of government securities in the open market. $$ 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. Consider the money multiplier and assume the, Suppose that the reserve requirement ratio is 4% and that the Fed uses open market operations (OMO) by BUYING $200 million worth of Treasury securities. A Burton marketing division in Lille, France, imports 200,000 chainsaws annually from the United States. If the Fed raises the reserve requirement, the money supply _____. c. copyright 2003-2023 Homework.Study.com. If a bank does not have enough reserves, it can. 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. Suppose the Federal Reserve conducts an open market purchase of $150 million government securities from the non-bank public. The Federal Reserve conducts open market operations when it wants to [{Blank}]? a. increases; rises b. does not change; falls c. decreases; rises d. decreases; falls e. increases; falls. The fixed monthly cost is $21,000, and the variable cost. C. The value of the dollar will decrease in foreign exchange markets. b. the Federal Reserve buys bonds on the open market. Which action would the federal reserve rate take to expand the money supply and lower the equilibrium interest rate? Suppose the Federal Reserve buys government Open market operations versus discount loans Consider an expansionary open market operation. &\textbf{0-30 days}&\textbf{31-90 days}&\textbf{Over 90 days}\\ A perfectly competitive firm is a price taker because: It has no control over the market price of its product. a. Generally, the central bank. C. contractionary monetary policy by, An open market sale by the Fed A. increases the money supply, which leads to increased interest rates and a fall in investment spending. To fight a recession, the Fed should conduct what kind of monetary policy to do what to interest rates and shift aggregate demand to the: A. contractionary; increase; left B. contractionary; decrease; Assume the demand for money curve is stationary and the Fed increases the money supply. c. buys bonds from ban, The Federal Reserve's sale or purchase of government bonds is referred to as: a. open market operations b. credit rationing c. quantitative easing d. monetarism, If the Fed wants to increase the money supply through an open market operation, it will a. purchase government securities. The difference between equilibrium output and full-employment output. Government bond operations. c. an increase in the quantity of money demanded. b) means by which the Fed acts as the government's banker. D. Decrease the supply of money. Ceteris paribus, if the reserve requirement is decreased to 0.05, then excess reserves will increase by: By raising or lowering the _______, the Fed changes the cost of money for banks, which impacts the incentive to borrow reserves. c) Increasing the money supply. 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? The Federal Open Market Committee is responsible for: a) reducing the Fed's reliance on open market operations. then the Fed. We start by assuming that there is no reserve requirement or lending by the Central Bank. Road Warrior Corporation began operations early in the current year, building luxury motor homes. c. state and local government agencies only. When the Federal Reserve increases the discount-rate increases the discount rate as a part of a contractionary monetary policy, there is: A. Should the Fed increase or decrease the money supply? The money supply decreases. 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. Assume a fixed demand for money curve and the Fed decreases the money supply. If the price of computers falls during a period when the average price level remains constant, which of the following has occurred? The people who sold these bonds keep all their money in checking accounts. Raise the reserve requirement, increase the discount rate, or . The aggregate supply curve is positively sloped because as the price level increases: Profit margins increase in the short run. When the Federal Reserve Bank buys US Treasury bonds on the open market, then _______. U.S.incometaxrateontheU.S.divisionsoperatingincome40%FrenchincometaxrateontheFrenchdivisionsoperatingincome45%Frenchimportduty20%Variablemanufacturingcostperchainsaw$100Fullmanufacturingcostperchainsaw$175Sellingprice(netofmarketinganddistributioncosts)inFrance$300\begin{matrix} Assume central bank money (H) is initially equal to $100 million. 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 c) decreases government spending and/or raises taxes. All rights reserved. If not, how will the Central Bank control inflation? 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. 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. B.bond prices will fall, and interest rates will fall. B) bond yields will fall C) bond yields will increase as well. 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? Over the 30-year life of the. The result is that people a. increase the supply of bonds, thus driving up the interest rate. Fiscal policy should be used to shift the aggregate demand curve. d. The money supply should increase when _ a. Suppose a market is dominated by three firms. Use a balance sheet to show the impact on the bank's loans. The U.S. Treasury c. The U.S. Mint d. The federal government And involves: a. Quantitative easing b. B. b. The Fed decides that it wants to expand the money supply by $40 million. Instead of paying her for this service,the neighbor washes the professor's car. Ceteris paribus, if the Fed raised the required reserve ratio: Question: Ceteris paribus, if the Fed raised the required reserve ratio: This problem has been solved! 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%. It allows people to obtain more goods than they can using money. c. Fed sells bonds. Issuanceofstock.Cashdividends.Balance,December31,2012.$3ParCommonStock$375120AdditionalPaid-inCapital$2,225240RetainedEarnings$4,200990(69)AccumulatedOtherComprehensiveIncome$123TotalShareholdersEquity$6,812. Privacy Policy and A change in government spending, a change in taxes, and monetary policy. Name the three tools of monetary policy that the Federal Reserve System can do to combat unemployment/recession. d. velocity increases. are in the same box the next time you log in. d. the price level decreases. Open-market operations occur when the Federal Reserve: a. buys U.S. Treasury bills from the federal government. To decrease the money supply, the Fed can, raise the reserve requirement, raise the discount rate, or sell bonds. 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. The equilibrium price level and equilibrium output should both increase. Make sure you say increase or decrease/buy or sell. c. engage in open market sales of government securities. C. treasury bond operations. If the Fed decreases the money supply, GDP ________. 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. Suppose the Federal Reserve wishes to use monetary policy to close an expansionary gap. b. All rights reserved. Fill in either rise/fall or increase/decrease. The result is that people _____. 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. The buying and selling of government securities by the Fed is known as: A. open market operations. Demand; marginal revenue and marginal cost. a. Biagio Bossone. 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. 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). Assume that the Fed increases the monetary base by $1 billion when the reserve requirement is 1/7. Decrease the discount rate. C. $120,000 in checkable-deposit liabilities and $32,000 in reserves. B. 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? If the Fed is using open-market operations, An open market operation is a purchase or sale of ___ by the ___ in the open market. lower reserve requirements.I and III onlyCurrently the Fed sets monetary policy by targetingthe Fed funds rate From October 1983 . 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. 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. }\\ d. the money supply is not likely to change. b. The information provided should help you work out why you missed a question or three! b. sell government securities. When the Fed raises the reserve requirement, it's executing contractionary policy. When you've placed seven or more cards in the Don't know box, click "retry" to try those cards again. What happens to interest rates? You can also use your keyboard to move the cards as follows: If you are logged in to your account, this website will remember which cards you know and don't know so that they Suppose government spending increases. Buy Treasury bonds, bills, or notes on the bond market. Aggregate demand will decrease or shift to the left. If the Fed raises the reserve requirement, the money supply _____. As a result, the money supply will: a. increase by $1 billion. The Federal Reserve carries out open-market operations, purchasing $1 million worth of bonds from banks. 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. Cause a reduction in the dem. 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. 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. 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? Suppose a bank has $50,000 in transactions accounts and a minimum reserve requirement of 10 percent. Get access to this video and our entire Q&A library, How the Federal Reserve Changes the Money Supply and Affects Interest Rates. Each bond is worth $1000 (so the Fed has bought $3000 worth of bonds). If the Fed sells government bonds, this will: A. 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. the demand for money. \text{French import duty} & \text{20\\\%}\\ 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. The Fed wishes to increase the money supply it can, Economics Chapter 15 (BEST ALL THE ANSWERS), Sp 8 Unidad 1A - Un fin de semana en Madrid. At what price per share did Wave Water issue common stock during 2012? The Burton Company manufactures chainsaws at its plant in Sandusky, Ohio. B. increase the supply of bonds, decrease bond prices, and increase interest rates. Decrease the price it asks for the bonds. Transcribed Image Text: Question Now we introduce banks that will act as liquidity providers in the economy. Currency circulation in the economy will increase since the non-bank public will have sold their securities. C. The nominal interest rate does not change. \text{Accounts receivable amount}&\text{\$\hspace{1pt}263,000}&\text{\$\hspace{1pt}134,200}&\text{\$\hspace{1pt}64,200}\\ d) increases the money supply and lowers interest rates. 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.