The Fed has most likely reduced the, If the Fed wishes to increase the money supply it can, If the Fed wishes to decrease the money supply it can, The rate of interest banks charge each other for lending reserves is the, 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, consists of seven members appointed by the President of the United States, who together act as the key decision-making entity for monetary policy, Bank reserves in excess of required reserves, Ceteris paribus, if the Fed raises the discount rate, then, the incentive to borrow reserves decreases. \end{array} 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. Answer: D. 15. If the Fed raises the reserve requirement, the money supply _____. are the minimum amount of reserves a bank is required to hold. D.bond prices will rise, and interest rates will fall. Ceteris paribus, if the Fed reduces the reserve requirement, then: A. A. decreases; decreases B. decreases; increases C. increases; decreases D. increases. &\textbf{Original Categories}&\textbf{Categories Change}\\[5pt] While those goals were articulated in 1977, 2 the approach and tools used to implement those objectives have changed over time. What fiscal policy tools are used to shift the aggregate demand curve? Is this an example of fiscal policy or monetary policy? For best results enter two or more search terms. Currency, transactions accounts, and traveler's checks. The Treasury buys bonds in the open market c. The Fed reduces reserve requirements d. The Treasury sells b. Assume that the reserve requirement is 20%. Is it mandatory for banks to buy gov't bonds during open-market operations by the Central Bank? b. buys or sells foreign currency. The French import duty is charged on the price at which the product is transferred into France. Total deposits decrease. 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. decrease; decrease; decrease b. __ Money paid to stockholders from earnings of a corporation. The Baltimore banks regional federal reserve bank. The key decision maker for U.S. monetary policy is: Ceteris paribus, if the Fed raises the reserve requirement, then: e The lending capacity of the banking system decreases. Open market operations When the Fed sells government securities, it: a. lowers the cost of borrowing from the Fed, encouraging banks to make loans to the general public. A sale of treasury bills by the federal reserve _____ interest rates and _____ the money supply. The new reserve requirement exemption amount and low reserve tranche will be effective for all depository institutions beginning January 1, 2022. \text{General and Administrative Expense}&\text{\hspace{12pt}425,000}&\text{\hspace{12pt}425,000}\\ copyright 2003-2023 Homework.Study.com. Terms of Service. If you knew the answer, click the green Know box. Currency circulation in the economy will increase since the non-bank public will have sold their securities. &\textbf{past due}&\textbf{past due}&\textbf{past due}\\[5pt] 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. Why does an open market purchase of Treasury securities by the Federal Reserve increase bank reserves? c. the interest rate rises and this. B. fewer reserves and inc, Suppose you read in the paper that the Fed plans to reduce money supply. These actions can be classified as expansionary or contractionary, depending on the prevailing market conditions. You'll get a detailed solution from a subject matter expert that helps you learn core concepts. Cause an excess demand for money and a decrease in the rate of interest. B. The use of money and credit controls to change macroeconomic activity is known as: Monetary policy. The Federal Reserve's monetary policy is one of the ways in which the U.S. government tries to regulate the nation's economy by controlling the money supply. The information provided should help you work out why you missed a question or three! Which of the following is likely to occur if people reduce their spending because they are worried about an economic downturn, ceteris paribus? What is Wave Waters debt ratio on this date? Determine whether each of the following, Open market operations are the a. buying and selling of Federal Reserve Notes in the open market. eachus, which of the following will occur if the Fed buys bonds through open-market operations? U.S.incometaxrateontheU.S.divisionsoperatingincome40%FrenchincometaxrateontheFrenchdivisionsoperatingincome45%Frenchimportduty20%Variablemanufacturingcostperchainsaw$100Fullmanufacturingcostperchainsaw$175Sellingprice(netofmarketinganddistributioncosts)inFrance$300\begin{matrix} d. commercial bank, Assume all money is held in the form of currency. c. Previous question Next question Price charged is always less than marginal revenue. - 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. Michael Haines CBDC Next-Level: A New Architecture for Financial "Super-Stability" by. 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 _______. 1. Suppose further that the required reserve, Explain briefly: a. Suppose the bond market and the money market both start out in equilibrium and then the Federal Reserve increases the money supply. c. an increase in the demand for bonds and a rise in bond prices. If the Fed decides to engage in an open market operation to increase the money supply, what will it do? Which of the following indicates the appropriate change in the U.S. economy? The reserve ratio is 20%. The answer is b. rate of interest decreases. Otherwise, click the red Don't know box. 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 If the Fed sells government bonds, this will: A. A, Suppose that the Fed engages in an open-market purchase of $4,000 in securities from Bank A. a. Increase the reserve requirement. b. means by which the Fed supplies the economy with currency. 1. 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. C.banks' reserves will be reduced. 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. Assume the reserve requirement is 5%. }\\ How can you tell? C. decreases, 1. Bob, a college student looking for summer work. If you've accidentally put the card in the wrong box, just click on the card to take it out of the box. If the federal reserve increases the discount rate, the money supply will: a) decrease. The nominal interest rates rises. 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? Ceteris paribus, if the Fed raises the reserve requirement, then: The money multiplier increases. 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 Any import duty paid to the French authorities is a deductible expense for calculating French income taxes. b. c-A forecast of a permanent demand increase shifts the investment line . Open market operations. \text{Expenses:}\\ 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. Should the Fed increase or decrease the money supply? Instead of paying her for this service,the neighbor washes the professor's car. 2. Ceteris paribus, if the Fed raises the reserve requirement, then: e The lending capacity of the banking system decreases. Which of the following functions does the Fed perform? e. increase inflation. You'll get a detailed solution from a subject matter expert that helps you learn core concepts. d. lower reserve requirements. Its marginal revenue curve is below its demand curve. Decrease the price it asks for the bonds. b. Wave Waters total liabilities on December 31, 2012, are $7,800. $$ 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. b. increase the supply of bonds, thus driving down the interest ra, If the Fed begins to buy treasury bills to counter a recession, we would expect to see an increase in the a. demand for money. The buying and selling of government bonds by the Fed to control bank reserves and the money supply are operations known as a. 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. b. a decrease in the demand for money. c. increase, down. a. The Great Depression was caused by a steep decline in the money supply when the stock market crashed in 1929. Assume central bank money (H) is initially equal to $100 million. B ) bond yields will fall 2) A negative output gap indicates that A) nominal GDP is below real GDP. Explain. Look at the large card and try to recall what is on the other side. A) increases; increases B) increases; decreases C) decreases; increases D) decreases; decreases, If the Federal Reserve was concerned about the "crowding-out" effect, they could engage in: A. expansionary monetary policy by lowering the discount rate. \text{Variable manufacturing cost per chainsaw} & \text{\$100}\\ \text{Manufacturing overhead} \ldots & 1,200,000 \\ c. first purchase, then sell, government secur, If the Fed wants to decrease the money supply by $5,000, the Fed will use open market operations to _____ worth of U.S. government bonds. Key Points. c) overseeing the buying and selling of government securities in the open market. Would the effect on aggregate demand be larger if the Federal Reserve held the money supply constant in response or if the Fed were committed to maintaining a fixed interest rate? The text describes the theoretical developments of the assignment rules regarding fiscal and monetary policies and the respective roles in macroeconomics stabilisation. The result is imperfect monitoring, which creates profit opportunities for speculators, who do not act as dealers but simply When the Federal Reserve sells bonds as a part of a contractionary monetary policy, there is: A. The result is that people a. increase the supply of bonds, thus driving up the interest rate. The sale of bonds to the Fed by banks B. c. has an expansionary effect on the money supply. 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. 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}]. When the Fed buys government Securities in the open market (a) bank reserves increase (b) bank reserves decline (c) money supply increases but bank reserves remain unchanged (d) money supply declines but bank reserves remain unchanged. a. increase the supply of bonds, thus driving up the interest rate. The sale of bonds to the Fed by the public C. Increases in banks' excess reserves D. Increases in. How will the lending capacity of the banking system be affected if the reserve requirement is 5 percent? Banks must hold more funds used for loans in reserve. (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. ceteris paribus, if the fed raises the reserve requirement, then: Posted on . If the Fed is using open-market operations, An open market operation is a purchase or sale of ___ by the ___ in the open market. Suppose the banks in the Federal Reserve System have $400 million in transactions accounts and the reserve requirement is 0.10. $$ b. lowers inflation but raises unemploym, Assume the demand for money curve is stationary and the Fed 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. d. has a contractionary effect on the money supply. You would need to create a new account. a) decreases, decreases b) decreases, increases c) increases, decr, An increase in the interest rate will cause: an increase in the demand for money an increase in the supply of money a decrease in the demand for money a decrease in the quantity demanded of money, When the Federal Reserve increases the money supply and expands aggregate demand, it moves the economy along the Phillips curve to a point with (blank) inflation and (blank) unemployment. Increase / Decrease b. D. The value o, If the nominal interest rate were to increase, then: a. money demand decreases and the price level increases. Suppose a market is dominated by three firms. Fiscal policy should be used to shift the aggregate demand curve. Assume a fixed demand for money curve and the Fed decreases the money supply. Suppose the Federal Reserve buys government Open market operations versus discount loans Consider an expansionary open market operation. The result is that people _____. Find the taxable wages. b) decreases the money supply and raises interest rates. Demand; marginal revenue and marginal cost. 1) Ceteris paribus, if bond prices rise, then A) the Federal reserve must be pursuing contractionary monetary policy. If the Fed sells $1 million of government bonds, what is the effect on the economy's reserves and money supply? Suppose the Federal Reserve wishes to use monetary policy to close an expansionary gap. A stock person who is laid off by a department store because retail sales across the country have decreased is _______ unemployed. Total reserves increase.B. Money supply to decrease b. 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. Ceteris paribus, if the Fed reduces the reserve requirement ratio, then: A) The lending capacity of the banking system increases. Hence C is the correct option. D. The money multiplier decreases. B.bond prices will fall, and interest rates will fall. Open market operations c. Printing mo. The Fed sells Treasury bills in the open market b. Privacy Policy and If $200,000 is deposited in the bank, then ceteris paribus: Excess reserves will increase by $170,000. Decrease the demand for money. b. prices to increase by 3%. are in the same box the next time you log in. U.S. goods are less expensive for Americans so they buy fewer imports and more domestic goods. Suppose the Federal Reserve buys government securities from the non-bank public. b. buys bonds from banks, which increases bank reserves. b. the same thing as the long-term growth rate of the money supply. The money multiplier is equal to ______ and the reserve ratio is equal to _____%. b. rate of interest decreases. Lowers the cost of borrowing from the Fed, encouraging banks to make loans to the general public. The capital account surplus will increase. the process of selling Fed-issued IOUs between banks. Now suppose the Fed conducts an open market purchase of government bonds equal to $1, Fiscal policy is conducted by: a. Suppose the Federal Reserve purchases mortgage-backed securities (MBS). When the sellers deposit their checks in their bank accounts, their reserves will increase due to the deposits made. The lending capacity of the banking system decreases. The difference between price and average total cost multiplied by the quantity sold. Examples of money are: A. a check. By the end of the year, over $40 billion of wealth had vanished. D. Describe the categories change effect on net income and accounts receivable. 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. 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. What is the impact of the purchase on the bank from which the Fed bought the securities? Annual gross pay of $18,200. If the Fed uses open-market operations, should it buy or sell government securities? 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). a. It allows people to obtain more goods than they can using money. Ceteris paribus, what will occur if the Fed buys bonds through open-market operations? b) increase. \text{Total Expenses}&\text{\hspace{12pt}?}&\text{\hspace{12pt}? 23. Its policymakers are welcoming the recent slowdown in price increases, and the disinflation trend gives . 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%. d. sells U.S. Treasury bills to the federal government. a. increases, rises b. increases, falls c. decreases, falls d. decreases, does not change e. . 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. What types of accounts are listed on the post-closing trial balance? Name the three tools of monetary policy that the Federal Reserve System can do to combat unemployment/recession. 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. Ceteris paribus, if the Fed raises the reserve requirement, then: The lending capacity of the banking system decreases. The Fed decides that it wants to expand the money supply by $40 million. 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. As a result, the money supply will: a. increase by $1 billion. a. increase the supply of money by buying bonds b. increase the supply of money by selling bonds c. increase the demand for money by buying bonds d. increase the demand for mo, An increase in the money supply will cause interest rates to: a. rise b. fall c. remain unchanged. 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? 1. It is considered to be less efficient for an economy than the use of money. 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. 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%. Ceteris paribus, if the reserve requirement is decreased to 0.05, then excess reserves will . Which of the following is NOT a basic monetary policy tool used by the Fed? The aggregate demand curve should shift rightward. Inflation rate _____. 3 . One HEADLINE article in the text has the title "Fed cuts key interest rate half-point to 1 percent." b. it buys Treasury securities, which decreases the money supply. It creates money, it creates a transactions-account balance for the borrower, and the money supply increases. 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. Excess reserves increase. Suppose the Federal Reserve decided to sell $35 billion worth of government securities in the open market. When aggregate demand equals aggregate supply at the average price level. When the Federal Reserve System buys government securities on the open market: A. the money supply will decrease. c) increases government spending and/or cuts taxes. Monetary policy can help the Federal Reserve System to protect, influence, and increase benefits to the economy. d) increases the money supply and lowers interest rates. Suppose the Federal Reserve Bank buys Treasury securities. Multiple . d. lend more reserves to commercial banks. Then, ceteris paribus, bank reserves , currency in circulation and thus the monetary base will decreases etary base by increasing bank reserves only. C) Total deposits decrease. d) setting interest r, Suppose the Federal Reserve sells $30 million worth of securities to a bank. D. the buying and selling of stocks i, Suppose again that Third National Bank has reserves of $20,000 and check able deposits of $100,000. $$ }\\ C. decisions by the Fed to raise or lower interest rates. Increase the demand for money. FROM THE STUDY SET When you've placed seven or more cards in the Don't know box, click "retry" to try those cards again. Then required reserves are: If excess reserves are $50,000, demand deposits are $1,000,000, and the minimum reserve requirement is 5 percent, then total reserves are: Suppose a bank has $1,500,000 in deposits, a minimum reserve requirement of 20 percent, and total reserves of $350,000. b. engage in open market purchases of government securities. D. Decrease the supply of money. raise the discount rate. If the Fed uses open-market operations, should it buy or sell government securities? B. taxes. 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. During the last recession (2008-09. Acting as fiscal agents for the Federal government. Suppose the Fed conducts $10 million open market purchase from Bank A. b) an increase in the money supply and a decrease in the interest rate. Officials indicated an aggressive path ahead, with rate rises coming at each of the . \begin{array}{lcc} \text{French import duty} & \text{20\\\%}\\ &\textbf{past due}&\textbf{past due}&\textbf{past due}\\[5pt] When the Federal Reserve makes an open market purchase, the Fed: buys securities from banks and the public, which will decrease tha. \text{Total uncollectible? Ceteris paribus, based on the aggregate supply curve, if the price level _______ the quantity of real output _______ increases. d. velocity increases. \text{Percent uncollectible}&\text{8\\\%}&\text{17\\\%}&\text{31\\\%}\\ c. the money supply is likely to increase. d. the U.S. Treasury. If the Federal Reserve raises interest rates, it means the money supply starts to deplete. B. decrease by $200 million. B. decreases the bond price and decreases the interest rate. If the number of dollars you receive every year is the same, but prices are rising, then your nominal income: Stays the same but your real income falls. 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. B) bond yields will fall C) bond yields will increase as well. Ceteris paribus, if the Fed raises the reserve requirement, then: The lending capacity of the banking system decreases. During the year, the company started and completed 45 motor homes at a cost of $\$ 55,000$ per unit. To see how well you know the information, try the Quiz or Test activity. In order to increase sales by one item per month, the monopolist must lower the price of its software by $1 to $49. d) All of the above. The people who sold these bonds keep all their money in checking accounts. 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. When the Federal Reserve Bank buys US Treasury bonds on the open market, then _______. A. buy $25,000 B. sell $25,000 C. sell $5,000 D. buy $1,000 E. sell $1,000, In times of economic downturn, the Federal Reserve will engage in ___ monetary policy by ___ bonds.