If the Fed uses open-market operations, should it buy or sell government securities? $$ When you need a break, try one of the other activities listed below the flashcards like Matching, Snowman, or Hungry Bug. 2. If the Fed decides to engage in an open market operation to increase the money supply, what will it do? d. sells U.S. Treasury bills to the federal government. Its marginal revenue curve is below its demand curve. c. the money supply divided by nominal GDP. \text{Net Credit Sales}&\text{\$\hspace{1pt}1,454,500}&\text{\$\hspace{1pt}1,454,500}\\ b. It involves the direct exchange of one good or service for another. 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. Our experts can answer your tough homework and study questions. Money demand c. Investment spending d. Aggregate demand e. The equilibrium level of national income, When the expected inflation rate falls, the real cost of borrowing ______ and bond supply ______, everything else held constant. Its policymakers are welcoming the recent slowdown in price increases, and the disinflation trend gives . (a) increases because the resulting increase in the interest rate leads to a decrease in investment (b) increases because the resulting decrease in the interest rate leads to an increase in investment (, The Fed decreases the quantity of money. Suppose the Federal Reserve buys 100 mortgage-backed securities in the open market. $140,000 in checkable-deposit liabilities and $46,000 in reserves. 3 . b) increases the money supply and lowers interest rates. What is Wave Waters debt ratio on this date? b. c. prices to increase by 2%. Which of the following functions does the Fed perform? In terms of pricing, which of the following is not true for a monopolist? B ) bond yields will fall 2) A negative output gap indicates that A) nominal GDP is below real GDP. Assume that the currency-deposit ratio is 0.5. The Federal Reserve expands the money supply by 5 percent. This causes excess reserves to, the money supply to, and the money multiplier to. 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. Increase / Decrease b. D. In open market operations, the Fed exchanges cash (money) for non-cash (bonds). Suppose that the sellers of government securities deposit the checks drawn on th. d. raise the treasury bill rate. 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. A stock person who is laid off by a department store because retail sales across the country have decreased is _______ unemployed. Conduct open market sales of government bonds. Now suppose the. then the Fed. Make sure to remember your password. a. \begin{array}{l r} \begin{array}{lcc} Cost of finished goods manufactured. \text{Total per category}&\text{?}&\text{?}&\text{? Ceteris paribus, if the reserve requirement is decreased to 0.05, then excess reserves will . Decrease the discount rate. Money is functioning as a standard of value if you: Compare the prices of running shoes online to those in a sporting goods store. 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 securities from the nonbank public. 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) bond yields will fall C) bond yields will increase as well. If the Federal Reserve increases the money supply, ceteris paribus, the: a. rate of interest is unaffected. CBDC Next-Level: A New Architecture for Financial "Super-Stability" by. E.the Phillips curve will shift down. b. increase the money supply. The following is the past-due category information for outstanding receivable debt for 2019. B. c. the money supply is likely to increase. a. c). 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. Raise reserve requirements 3. Previous question Next question Ceteris paribus, if the Fed raises the reserve requirement, then: The money multiplier increases. Ceteris paribus, what will occur if the Fed buys bonds through open-market operations? The Federal Reserve carries out open-market operations, purchasing $1 million worth of bonds from banks. On March 5 and 6, I surveyed over 500 consumers about their concerns about COVID-19, awareness of the Fed's . A sale of treasury bills by the federal reserve _____ interest rates and _____ the money supply. b. The Fed's decision amounted to a shift to a more cautious period of inflation fighting. 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? They will remain unchanged. $$ b. If the Fed raises the reserve requirement, the money supply _____. 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. Excess reserves increase. What effect will this open market operation have on demand deposits and M1? Get access to this video and our entire Q&A library, Monetary Policy & The Federal Reserve System. 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. If the Fed sells $1 million of government bonds, what is the effect on the economy's reserves and money supply? How does the Federal Reserve regulate the money supply? C. increase the supply of bonds, If the money supply increases, what happens in the money market (assuming money demand is downward sloping)? Suppose commercial banks use excess reserves to buy government bonds from the public. Multiple Choice . 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. Buy Treasury bonds, bills, or notes on the bond market. Assume that the Fed increases the monetary base by $1 billion when the reserve requirement is 1/7. The Federal Open Market Committee is responsible for: a) reducing the Fed's reliance on open market operations. $$ At what price per share did Wave Water issue common stock during 2012? Price falls to the level of minimum average total cost. If they have it, does that mean it exists already ? C. The value of the dollar will decrease in foreign exchange markets. The VOC was also the first recorded joint-stock company to get a fixed capital stock. b. the interest rate rises and this stimulates consumption spending. copyright 2003-2023 Homework.Study.com. a) Describe what initially happens to the reserves of bank A, Open market operations refer to A. the buying and selling of government bonds by the Fed. Suppose the Federal Reserve purchases mortgage-backed securities (MBS). 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. c. the money supply and the price level would increase. Causes an increase in the federal funds rate, c. Increases reserve holdings of the commercial banks, d. Lowers the cost of borrowing from the Fed, e. Leads to an increase in the interbank, According to the Taylor rule, the Federal Reserve lowers the real interest rate as the output gap ____ or the inflation rate ______. Could the Federal Reserve continue to carry out open market operations? The money multiplier is equal to ______ and the reserve ratio is equal to _____%. b) increases, so the money supply decreases. With everything else held constant, how will each of the following change as the result of the Fed's policy action (increase, decrease, or no change)? &\textbf{past due}&\textbf{past due}&\textbf{past due}\\[5pt] The Fed sells Treasury bills in the open market b. 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. A decrease in the reserve ratio will: a. b. an increase in the demand for money balances. An increase in the reserve ratio: a. increases the money multiplier. c) overseeing the buying and selling of government securities in the open market. Increase; appreciate b. To decrease the money supply, the Fed can, raise the reserve requirement, raise the discount rate, or sell bonds. 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. d) borrow reserves from the Federal Reserve. $$ 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? 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? }\\ How can you tell? 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. a. contractionary; buying b. expansionary; buying c. expansionary; selling d. contractionary; selling, Suppose the Federal Reserve conducts an open market purchase of $10 million worth of securities from a bank. 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. During the last recession (2008-09. Changing the reserve requirement is expensive for banks. a. decrease; decrease; decrease b. \textbf{Comparative Income Statements}\\ The capital account surplus will increase. }\\ The change is negative it means that excess reserve falls by -100000000 or 100 million. In order to decrease the money supply, the Fed can. d, If the Federal Reserve wants to increase output, it increases A. government spending. C. Increase the supply of money. d. the U.S. Treasury. Is this an example of fiscal policy or monetary policy? How will the lending capacity of the banking system be affected if the reserve requirement is 5 percent? \text{Expenses:}\\ 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? See Answer The reserve requirement, the discount rate, and the sale and purchase of Treasury bonds. Check all that apply. d. the average number of times per year a dollar is spent. 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? 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. }\\ C. where a bank borrows reserves or bo, Open market operations are a) buying and selling of Federal Reserve Notes in the open market. C. The nominal interest rate does not change. d. Conduct open market sales. 1. Assume that the reserve requirement is 20%. D. all of the above. B. a dollar bill. If you knew the answer, click the green Know box. Fill in either rise/fall or increase/decrease. a. increases; rises b. does not change; falls c. decreases; rises d. decreases; falls e. increases; falls. b. sell government securities. 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? a. What is the impact of the purchase on the bank from which the Fed bought the securities? When the Fed buys bonds in open-market operations, it _____ the money supply. 41. \text{General and administrative expenses} \ldots & 500,000 \\ b. Suppose the Federal Reserve Bank buys Treasury securities. 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. The Federal Reserve (the Fed), the central bank of the United States, has a Congressional mandate to promote maximum employment and price stability. Suppose the Federal Reserve engages in open-market operations. The answer is b. rate of interest decreases. Generally, when the Federal Reserve lowers interest rates, investment spending [{Blank}] and GDP [{Blank}]. U.S.incometaxrateontheU.S.divisionsoperatingincome40%FrenchincometaxrateontheFrenchdivisionsoperatingincome45%Frenchimportduty20%Variablemanufacturingcostperchainsaw$100Fullmanufacturingcostperchainsaw$175Sellingprice(netofmarketinganddistributioncosts)inFrance$300\begin{matrix} Now suppose the Fed conducts an open market purchase of government bonds equal to $1, Fiscal policy is conducted by: a. c) borrow reserves from other banks. The new reserve requirement exemption amount and low reserve tranche will be effective for all depository institutions beginning January 1, 2022. International Financial Advisor. 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? }\\ A. decrease, downward B. decrease, upward C. increase, downward D. increase, If inflation begins to rise rapidly, which step is the Federal Reserve likely to take? 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 ______. Suppose a bank has $50,000 in transactions accounts and a minimum reserve requirement of 10 percent. b) means by which the Fed acts as the government's banker. Cause a reduction in the dem. Use these flashcards to help memorize information. When you've placed seven or more cards in the Don't know box, click "retry" to try those cards again. The Federal Reserve can decrease the money supply by: A. buying gold reserves on the open market B. buying foreign currency in the exchange market C. buying government bonds on the open market D. selling bonds on the open market E. selling financial capit. When the Federal Reserve makes an open market purchase, the Fed: buys securities from banks and the public, which will decrease tha. The Federal Reserve conducts open market operations when it wants to [{Blank}]? Price charged is always less than marginal revenue. Raise discount rate 2. In order to maintain price stability, the Federal Reserve has decided to engage in monetary restraint. Key Points. This action increased the money supply by $2 million. [Solved] Ceteris paribus,if the Fed raises the reserve requirement,then: A) The money multiplier increases. b. the Federal Reserve buys bonds on the open market. b) an increase in the money supply and a decrease in the interest rate. 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. (ii) instructs the New York Fed to sell government securities in the foreign exchange market. a. C. decisions by the Fed to raise or lower interest rates. In response, people will a. sell bonds, thus driving up the interest rate. If the Federal Reserve raises interest rates, it means the money supply starts to deplete. 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. Over the 30-year life of the. 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. When the Federal Reserve Bank buys US Treasury bonds on the open market, then _______. a. increase the supply of bonds, thus driving up the interest rate. Issuanceofstock. Cashdividends. U.S.incometaxrateontheU.S.divisionsoperatingincome, FrenchincometaxrateontheFrenchdivisionsoperatingincome, Sellingprice(netofmarketinganddistributioncosts)inFrance, Alexander Holmes, Barbara Illowsky, Susan Dean, Claudia Bienias Gilbertson, Debra Gentene, Mark W Lehman, Fundamentals of Engineering Economic Analysis, David Besanko, Mark Shanley, Scott Schaefer, Don Herrmann, J. David Spiceland, Wayne Thomas. d. commercial bank, Assume all money is held in the form of currency. Otherwise, click the red Don't know box. Expansionary fiscal policy is when a. the government lowers spending and raises taxes. 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. Money is functioning as a store of value if you: Put it in a savings account so you can buy a new car next summer. If the Federal Reserve System buys government securities from commercial banks and the public: a. the money supply will contract. &\textbf{past due}&\textbf{past due}&\textbf{past due}\\[5pt] In the short run, the quantity of money demanded [{Blank}] and the nominal interest rate [{Blank}]. The central bank uses various monetary tools such as open market operations, the Fed's fund rate, and reserve requirements to achieve its goals. c) decreases, so the money supply increases. C. $120,000 in checkable-deposit liabilities and $32,000 in reserves. According to the monetarist view, the aggregate supply curve is: Vertical at the natural rate of unemployment. Name the three tools of monetary policy that the Federal Reserve System can do to combat inflation. d) increases the money supply and lowers interest rates. The text describes the theoretical developments of the assignment rules regarding fiscal and monetary policies and the respective roles in macroeconomics stabilisation. Each bond is worth $1000 (so the Fed has bought $3000 worth of bonds). A) increases; supply. c) buying and selling of government securities by the Treasury. Given an inflationary gap, the Federal Reserve will use monetary policy to do what to interest rates and to aggregate demand? lower reserve requirements.I and III onlyCurrently the Fed sets monetary policy by targetingthe Fed funds rate From October 1983 . Transcribed Image Text: Question Now we introduce banks that will act as liquidity providers in the economy. (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. A combination of flexible rules and limited discretion. State tax on first $3,000: 1.5$ percent. a. increases, rises b. increases, falls c. decreases, falls d. decreases, does not change e. . A. expands, higher, higher B. expands, higher, lower C. expands, lower, higher D. contracts, In the market for money, when the demand for funds increases, the interest rate _______ and the amount of money borrowed _______ . Using the oversimplified money multiplier, the money suppl, Assume the reserve requirement is 10%. a. increase, increase, sell b. increase, increase, buy c. decrease, decrease, buy d. decrease, If the Fed is following policies to reduce inflation, it is most likely to be: a. lowering interest rates b. raising the money supply c. lowering the money supply d. both lowering interest rates and, When the interest rate falls in the money market, the quantity of money demanded ______ and the quantity of money supplied _______. B.bond prices will fall, and interest rates will fall. \text{Variable manufacturing cost per chainsaw} & \text{\$100}\\ C) buying and selling of government s. In carrying out open market operations, the Federal Reserve usually buys and sells U.S. Treasury securities. \text{Bad Debt Expense}&\text{\hspace{12pt}?}&\text{\hspace{12pt}? Fill in either rise/fall or increase/decrease. 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. d. prices to remain constant. b. sell government securities. Also assume that banks do not hold excess reserves and there is no cash held by the public. What are some basic monetary policy tools used by the Fed? B) means by which the Fed acts as the government's banker. Currency, transactions accounts, and traveler's checks. How would this affect the money supply? 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. Facility location decisions are significant for an organization because:? If there is a recession, the Fed would most likely a. encourage banks to provide loans by. We start by assuming that there is no reserve requirement or lending by the Central Bank. c) decreases government spending and/or raises taxes. b. }\\ D. interest rates will increase. The financial sector has grown relative to the real economy and become more fragile. \text{Full manufacturing cost per chainsaw} & \text{\$175}\\ D. All of the above. Name the three tools of monetary policy that the Federal Reserve System can do to combat unemployment/recession. a. increase the nominal interest rate and increase output b. decrease the n. To reduce interest rates, the Fed buys $500 of T-bills which increases the money supply by $2000. Fiscal policy should be used to shift the aggregate demand curve. \text{Income tax expense} \ldots & 100,000 \\ b) an open market sale and expansionary monetary policy. receivables. Government bond operations. How does it affect the money supply? d. lend more reserves to commercial banks. When the Fed raises the reserve requirement, it's executing contractionary policy. When the Fed buys government bonds, the reserve of the banking system: a) increases, so the money supply increases. c. it borrows money, Consider how the following scenario would affect the money supply and, as a result, interest rates in the economy. Ceteris paribus, an increase in _______ will cause an increase in ______. A) Increase money supply to decrease interest rates, increase i. Expansionary monetary policy: a) decreases government spending and/or raises taxes. B. decreases the bond price and decreases the interest rate. D) Required reserves decrease. c. the government increases spending and lowers taxes. \text{Total uncollectible? b) borrow reserves from the public. By raising or lowering the _______, the Fed changes the cost of money for banks, which impacts the incentive to borrow reserves. Consider an expansionary open market operation. Annual gross pay of $18,200. They will increase. An expansionary fiscal policy is when a. the government lowers spending and raises taxes. c. commercial bank reserves will be unaffected. 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. a. D. Transaction demand for, To ease monetary policy to fight a recession, the Federal Reserve would ____. c) not change. \text{French import duty} & \text{20\\\%}\\ 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. The difference between price and average total cost multiplied by the quantity sold. D. Decrease the supply of money. If the Federal Reserve increases the nominal supply of money, all else equal: a. the demand for money increases. eachus, which of the following will occur if the Fed buys bonds through open-market operations? The Board of Governors has ___ members,and they are appointed for ___ year terms. Here are the answers with discussion for yesterday's quiz. B. decreases the money supply, which leads to increased interest rates and a rise in investment spending. Free . b) decreases the money supply and raises interest rates. 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? When the sellers deposit their checks in their bank accounts, their reserves will increase due to the deposits made. When the Federal Reserve makes an open market purchase, the Fed: If the federal reserve injects $3,000 into the banking system through open market operations, did the federal reserve buy or sell government bonds? 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. Increase the demand for money. b. decrease, upward. Make sure you say increase or decrease/buy or sell. U.S. goods are less expensive for Americans so they buy fewer imports and more domestic goods. b. a decrease in the demand for money. What impact would this action have on the economy? Aggregate supply will increase or shift to the right. E. discount rate operations. If the Fed sells government bonds, this will: A. c. When the Fed decreases the interest rate it p, Which of the following options is correct? c. first purchase, then sell, government securities. Which of the following is NOT a possible source of last-minute reserves for a private bank? What happens to interest rates? B. decisions by the Fed to increase or decrease the money multiplier. Suppose the Federal Reserve undertakes an open market purchase of government bonds. If the Fed sells $1 million of government bonds, what is the effect on the economy s reserves and money supply? 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? &\textbf{Original Categories}&\textbf{Categories Change}\\[5pt]