If the Fed purchases $10 million in government securities, then wh. Your email address is only used to allow you to reset your password. Assume central bank money (H) is initially equal to $100 million. The Board of Governors has___ members, and they are appointed for ___year terms. 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. Suppose the Federal Reserve undertakes an open market purchase of government bonds. Decrease in the federal funds rate B. 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. How will the lending capacity of the banking system be affected if the reserve requirement is 5 percent? Decrease the discount rate. a. decreases; falls b. decreases; rises c. does not change; falls d. increases; rises e. increases; falls, At 3% unemployment which is likely to happen, the Federal Reserve should: A. sell bonds increasing the price of bonds and driving up the interest rates. The difference between equilibrium output and full-employment output. Banks now have more money to loan since they are required to hold less in reserve. the process of selling Fed-issued IOUs between banks. b. increase the supply of bonds, thus driving down the interest rate. The money supply increases. b. means by which the Fed supplies the economy with currency. 2. Find the taxable wages. The sale of bonds to the Fed by banks B. All other trademarks and copyrights are the property of their respective owners. C. a traveler's check. 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 buys government securities from commercial banks. B. decreases the bond price and decreases the interest rate. Accordingly, the Board is amending Regulation D to set the low reserve tranche for net transaction accounts for 2022 at $640.6 million, an increase of $457.7 million from 2021. b) an increase in the money supply and a decrease in the interest rate. D. $100,000 in checkable-deposit liabilities and $30,000 in reserves. Q01 . C) Excess reserves increase. 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? Open-market operations occur when the Federal Reserve: a. buys U.S. Treasury bills from the federal government. B.bond prices will fall, and interest rates will fall. C. excess reserves at commercial banks will increase. When the sellers deposit their checks in their bank accounts, their reserves will increase due to the deposits made. \text{Gross Margin}&\text{\hspace{5pt}1,369,250}&\text{\hspace{5pt}1,369,250}\\ Sell Treasury bonds, bills, or notes on the bond market. What is Wave Waters debt ratio on this date? They will increase. \begin{array}{c} d) decreases, so the money supply decreases. D. open bonds operations. a. Government bond operations. In the market for reserves, if the federal funds rate is above the interest rate paid on excess reserves, an open market sale ________ the ________ of reserves, causing the federal funds rate to increase, everything else held constant. Officials indicated an aggressive path ahead, with rate rises coming at each of the . Ceteris paribus, if the Fed reduces the reserve requirement ratio, then: A) The lending capacity of the banking system increases. a. increases, rises b. increases, falls c. decreases, falls d. decreases, does not change e. . 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. 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. 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? b. the Federal Reserve buys bonds on the open market. \text{Income tax expense} \ldots & 100,000 \\ Match the terms with definitions. Enter the email address you signed up with and we'll email you a reset link. Aggregate demand will decrease or shift to the left. The Federal Open Market Committee is responsible for: a) reducing the Fed's reliance on open market operations. If you forget it there is no way for StudyStack d. lower reserve requirements. A decrease in the reserve ratio will: a. Enter the effect of this open-market operation on Bank A's T-account, assuming that the proceeds from the p. If the Federal Reserve wants to decrease the money supply, it should: A. conduct open market purchases. For best results enter two or more search terms. Open market operations. If the Fed decides to engage in an open market operation to increase the money supply, what will it do? C. money supply. Ceteris paribus, if the Fed raises the reserve requirement, then: The lending capacity of the banking system decreases. Our experts can answer your tough homework and study questions. If the Open-Market Committee of the Federal Reserve sells securities, this action tends to: a. decrease the money supply. Required reserves decrease. 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. 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. 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%. Inflation rate _____. B. buy bonds lowering the price of bonds and driving up the interest rates. The result is imperfect monitoring, which creates profit opportunities for speculators, who do not act as dealers but simply a) decrease, downward b) decrease, upward c) inc. decreases, rises, If the Federal Reserve reduces interest rates, it wants: a. Free . Multiple Choice . c). Assume that banks use all funds except required, 13. $$ 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. C. Increase the supply of money. D.bond prices will rise, and interest rates will fall. Increase; depreciate c. Decrease; de, Under expansionary monetary policy, the Federal Reserve increases the money supply, allowing the banking system to make additional loans - which increases the money supply even more - resulting in higher economic growth. The Federal Reserve cut interest rates on March 3, 2020, in response to COVID-19. Suppose the Federal Reserve purchases mortgage-backed securities (MBS). 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. Terms of Service. Issuanceofstock.Cashdividends.Balance,December31,2012.$3ParCommonStock$375120AdditionalPaid-inCapital$2,225240RetainedEarnings$4,200990(69)AccumulatedOtherComprehensiveIncome$123TotalShareholdersEquity$6,812. Which action would the federal reserve rate take to expand the money supply and lower the equilibrium interest rate? 23. It sells $20 billion in U.S. securities. Expansionary fiscal policy is when a. the government lowers spending and raises taxes. d. the demand for money. 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. 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. If the Fed uses open-market operations, should it buy or sell government securities? The Great Depression was caused by a steep decline in the money supply when the stock market crashed in 1929. \textbf{ELEGANT LINENS}\\ \text{Selling expenses} \ldots & 500,000 The Federal Reserve carries out open-market operations, purchasing $1 million worth of bonds from banks. Compute the following for the current year: All rights reserved. FROM THE STUDY SET 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? Previous question Next question C) Total deposits decrease. Assume that the Fed increases the monetary base by $1 billion when the reserve requirement is 1/7. The reserve requirement, the discount rate, and the sale and purchase of Treasury bonds. The required reserve ratio is 16%. Here are the answers with discussion for yesterday's quiz. }\\ In addition, the company had six partially completed units in its factory at year-end. 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 . a. decrease, downward b. decrease. B. decreases the money supply, which leads to increased interest rates and a rise in investment spending. b. foreign countries only. C. $120,000 in checkable-deposit liabilities and $32,000 in reserves. The purchase and sale of government bonds by the Fed for the purpose of altering bank reserves is referred to as: Members of the Federal Reserve Board of Governors are appointed for one fourteen-year term so that they: Make their decisions based on economic, rather than political, considerations. What types of accounts are listed on the post-closing trial balance? c. an increase in the quantity of money demanded. d. the money supply is not likely to change. If the Fed conducts an open-market sale, bank reserves _ and the money supply is likely to _. b. 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? Which of the following is likely to cause a leftward shift in the aggregate supply curve, ceteris paribus? Increase government spending. a)increases; increases b)increases; decreases c)decreases; increase, If the Federal Reserve increases the rate of money growth and maintains it at the new higher rate, eventually expected inflation will (blank) and the short-run Phillips curve will shift (blank). It needs to balance economic growth. The Dutch East India Company (also known by the abbreviation "VOC" in Dutch) was the first publicly listed company ever to pay regular dividends. Which of the following indicates the appropriate change in the U.S. economy? are in the same box the next time you log in. Which of the following functions does the Fed perform? 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. c. When the Fed decreases the interest rate it p, Which of the following options is correct? b. it will be easier to obtain loans at commercial banks. 41. The Fed decides that it wants to expand the money supply by $40 million. b. sell bonds, thus driving down the interest rate. Why does an open market purchase of Treasury securities by the Federal Reserve increase bank reserves? 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 ______. Suppose the banks in the Federal Reserve System have $400 million in transactions accounts and the reserve requirement is 0.10. Ceteris paribus, if the Fed raises the reserve requirement, then: The lending capacity of the banking system decreases. a. decrease, downward. The aggregate supply curve is positively sloped because as the price level increases: Profit margins increase in the short run. This problem has been solved! 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. b. money demand increases and the price level decreases. B. d. lend more reserves to commercial banks. c) buying and selling of government securities by the Treasury. Over the 30-year life of the. 3 . C. the price level in the economy will rise, thus i. 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. 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%. b. buys or sells foreign currency. 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 Any import duty paid to the French authorities is a deductible expense for calculating French income taxes. What happens to interest rates? Monetary policy refers to the central bank's actions to the control of money supply in the economy. Ceteris paribus, if the reserve requirement is decreased to 0.07, then excess reserves will increase by: $3 million. Decrease the demand for money. }\\ III. The four components of aggregate demand are: Consumption, investment, government spending, and net exports. If the Fed decreases the money supply, GDP ________. Ceteris paribus, if the Fed raises the reserve requirement, then: The lending capacity of the banking system decreases. Get access to this video and our entire Q&A library, How the Federal Reserve Changes the Money Supply and Affects Interest Rates. b. the interest rate rises and this stimulates consumption spending. 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. 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). Suppose a bank has $50,000 in transactions accounts and a minimum reserve requirement of 10 percent. 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. Multiple Choice . c. increase, down. Bank A with total deposits of $100 million isfully loaned up. Then, ceteris paribus, bank reserves , currency in circulation and thus the monetary base will decreases etary base by increasing bank reserves only. 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. You'll get a detailed solution from a subject matter expert that helps you learn core concepts. 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. D. Decrease the supply of money. Check all that apply. The equilibrium price level and equilibrium output should both increase. $$. C. Controlling the supply of money. Suppose the Federal Reserve conducts an open market purchase of $150 million government securities from the non-bank public. }\\ When the Fed decreases the discount rate, banks will a) borrow more from the Fed and lend more to the public. \text{General and administrative expenses} \ldots & 500,000 \\ The money multiplier is equal to ______ and the reserve ratio is equal to _____%. A. D. interest rates will increase. The velocity of money is a. the rate at which the Fed puts money into the economy. Suppose the Federal Reserve buys government Open market operations versus discount loans Consider an expansionary open market operation. The difference in potential money creation when the Bank of Canada buys government securities from the chartered banks rather than from the public is due to the fact that a. excess reserves are larger when the Bank of Canada buys government securities from the chartered banks. 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. Which of the following is likely to occur if OPEC increases the amount of oil it supplies and domestic energy prices fall, ceteris paribus? How does the Federal Reserve regulate the money supply? Martin takes $150 out of his checking account and hides it in his house as cash. What impact would this action have on the economy? 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? If market interest rates rise, the selling price of existing bonds in the market will, ceteris paribus, . By the end of the year, over $40 billion of wealth had vanished. b. 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. 2. a. decrease; decrease; decrease b. D. conduct open market sales. __ Money paid to stockholders from earnings of a corporation. 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. D. The collectio. Transcribed Image Text: Question Now we introduce banks that will act as liquidity providers in the economy. \end{array} Fill in either rise/fall or increase/decrease. 1) Ceteris paribus, if bond prices rise, then A) the Federal reserve must be pursuing contractionary monetary policy. Total costs for the year (summarized alphabetically) were as follows: 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. Figure 14.10c depicts the aggregate investment function of an economy. copyright 2003-2023 Homework.Study.com. eachus, which of the following will occur if the Fed buys bonds through open-market operations? If the Fed sells bonds: A.aggregate demand will increase. The new reserve requirement exemption amount and low reserve tranche will be effective for all depository institutions beginning January 1, 2022. D. All of the above. On October 24, 1929, the stock market crashed. 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. How does it affect the money supply? The Fed approved a 0.25 percentage point rate hike, the first increase since December 2018. B. decisions by the Fed to increase or decrease the money multiplier. CBDC Next-Level: A New Architecture for Financial "Super-Stability" by. Price charged is always less than marginal revenue. c. Decrease interest rates. B. decrease by $2.9 million. b. sell government securities. Hence C is the correct option. $$ Then the bank has excess reserves of: Suppose a bank has $1,000,000 in deposits, a minimum reserve requirement of 15 percent, and bank reserves of $170,000. d. the U.S. Treasury. d. raise the treasury bill rate. B) means by which the Fed acts as the government's banker. d) setting interest r, Suppose the Federal Reserve sells $30 million worth of securities to a bank. A. buy $25,000 B. sell $25,000 C. sell $5,000 D. buy $1,000 E. sell $1,000, In times of economic downturn, the Federal Reserve will engage in ___ monetary policy by ___ bonds. It also raises the reserve ratio. See Answer Which transfer prices should the Burton Company select to minimize the total of company import duties and income taxes? If the Fed raises the reserve requirement, the money supply _____. a. Some terms may not be used. Wave Waters total liabilities on December 31, 2012, are $7,800. Assume a fixed demand for money curve and the Fed decreases the money supply. Cost of finished goods manufactured. $$ D) there is no effect on bond yields. Ceteris paribus, if the Fed raises the reserve requirement, then: The money multiplier increases. Buying securities in open market operations is a tool used by the Federal Reserve to increase the money supply in the economy, thus encouraging economic growth. Interest rates b. Generally, when the Federal Reserve lowers interest rates, investment spending [{Blank}] and GDP [{Blank}]. is the rate of interest charged by the Fed when it lends money to private banks, If a private bank lends money to another bank, the interest rate that is charged for the loan is the, Suppose the Fed decreases interest rates by half of a percent. a. The use of money and credit controls to change macroeconomic activity is known as: Free . When aggregate demand equals aggregate supply at the average price level. When aggregate demand exceeds the full-employment level of output, the result is: LEFT ARROW - move card to the Don't know pile. How can you tell? 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)? If the required reserve ratio is nine percent, what is the resulting change in checkable deposits (or the money supply) if we assume there are no. 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{Accounts receivable amount}&\text{\$\hspace{1pt}232,000}&\text{\$\hspace{1pt}129,000}&\text{\$\hspace{1pt}100,400}\\ If the Fed raises the reserve requirement, the money supply _____. Fiscal policy should be used to shift the aggregate demand curve. a. mortgages; Bank of America b. government securities; New York Fed c. government securities; Federal Reserve Bank of Florida d. Mortgages; Federal Reserve. b. sell government securities. $$ The paper argues that the process of financialization has profoundly changed how capitalist economies operate. C. The value of the dollar will decrease in foreign exchange markets. Suppose the banks in the Federal Reserve System have $100 million in transactions accounts and the reserve requirement is 0.10. The number and relative size of firms in an industry. Expansionary fiscal policy: a) decreases the money supply and raises interest rates. 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. Which of the following indicates the appropriate change in the U.S. economy after government intervention? b. If the Federal Reserve would like to increase the money supply, it can the reserve ratio, the discount rate, or government securities in open market operations. Now suppose the. 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. b) decreases the money supply and raises interest rates. d) means by which the Fed supplies the, Suppose the Fed wishes to use monetary policy to close an expansionary gap. 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. The Fed's decision amounted to a shift to a more cautious period of inflation fighting. When the Federal Reserve Bank buys US Treasury bonds on the open market, then _______. B) Total reserves increase D) The money multiplier decreases. D. decrease, Assume that the Federal Reserve establishes a minimum reserve requirement of 12.5%. $140,000 in checkable-deposit liabilities and $46,000 in reserves. Instead of paying her for this service,the neighbor washes the professor's car. &\textbf{past due}&\textbf{past due}&\textbf{past due}\\[5pt] (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. C. The nominal interest rate does not change. a) 0.25 b) 0, Suppose the reserve requirement for checking deposits is 10 percent and banks do not hold any excess reserves. c. the government increases spending and lowers taxes. 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. E.the Phillips curve will shift down. d) increases the money supply and lowers interest rates. In order to increase sales by one item per month, the monopolist must lower the price of its software by $1 to $49. 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 The people who sold these bonds keep all their money in checking accounts. 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. A change in government spending, a change in taxes, and monetary policy. a. higher, higher b. higher, lower c. lower, higher d. lower, lower, When lots of people put their money into bonds, the demand for money and the interest rate on bonds. c. engage in open market sales of government securities. to send you a reset link. A. decreases; decreases B. decreases; increases C. increases; decreases D. increases. The text describes the theoretical developments of the assignment rules regarding fiscal and monetary policies and the respective roles in macroeconomics stabilisation. b. B) bond yields will fall C) bond yields will increase as well. . 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. Ceteris paribus, based on the aggregate supply curve, if the price level _______ the quantity of real output _______ increases. A) Increase money supply to decrease interest rates, increase i. Expansionary monetary policy: a) decreases government spending and/or raises taxes.