The Federal Reserve Bank b. A perfectly competitive firm is a price taker because: It has no control over the market price of its product. \end{array} 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? C) Excess reserves increase. d. The money supply should increase when _ a. Suppose the Federal Reserve buys government securities from the nonbank public. D. Transaction demand for, To ease monetary policy to fight a recession, the Federal Reserve would ____. d. decrease the discount rate. C. money supply. b-A rise in corporate tax would shift the investment line outwards. Why does an open market purchase of Treasury securities by the Federal Reserve increase bank reserves? }\\ c. commercial bank reserves will be unaffected. Multiple Choice . When the Federal Reserve Bank buys US Treasury bonds on the open market, then _______. Make sure you say increase or decrease/buy or sell. Fill in either rise/fall or increase/decrease. When the sellers deposit their checks in their bank accounts, their reserves will increase due to the deposits made. (Income taxes are not included in the computation of the cost-based transfer prices.) Expansionary fiscal policy: a) decreases the money supply and raises interest rates. 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. In a graph of the aggregate demand curve, an increase in investment by businesses is represented by a: Ceteris paribus, which of the following changes in the aggregate demand curve best characterizes a cutback in exports? C. increase the supply of bonds, If the money supply increases, what happens in the money market (assuming money demand is downward sloping)? What is the reserve-deposit ratio? Find the taxable wages. C. $120,000 in checkable-deposit liabilities and $32,000 in reserves. 2. 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? D. The money multiplier decreases. Which of the following is consistent with what Keynes believed? Acting as fiscal agents for the Federal government. C. decisions by the Fed to raise or lower interest rates. \text{Variable manufacturing cost per chainsaw} & \text{\$100}\\ 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? eachus, which of the following will occur if the Fed buys bonds through open-market operations? The people who sold these bonds keep all their money in checking accounts. b. sell government securities. B. federal bond operations. }\\ Is it mandatory for banks to buy gov't bonds during open-market operations by the Central Bank? 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 _______. 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. Assume the required reserve ratio is 10 percent and the FOMC orders an open market sale of $50 million in government securities to banks. If the Fed raises the reserve requirement, the money supply _____. c. Increase the required reserve, Suppose the Federal Reserve s trading desk buys $500,000 in T-bills from a securities dealer who then deposits the Fed's check-in Best National Bank. During the year, the company started and completed 45 motor homes at a cost of $\$ 55,000$ per unit. B. decreases the bond price and decreases the interest rate. In terms of pricing, which of the following is not true for a monopolist? The money supply decreases. 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. Ceteris paribus, an increase in _______ will cause an increase in ______. When you've placed seven or more cards in the Don't know box, click "retry" to try those cards again. Ceteris paribus, if the reserve requirement is decreased to 0.05, then excess reserves will . An increase in the reserve ratio: a. increases the money multiplier. Explain. 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%. Figure 14.10c depicts the aggregate investment function of an economy. c. Decrease interest rates. 3. Which of the following lends reserves to private banks? 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 B) means by which the Fed acts as the government's banker. 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. 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. a. b) increase causing an increase in investment spending shifting aggregate deman, An expansionary monetary policy ____ the money supply, causing the real interest rate to ____ and planned investment to ____. View Answer. Make sure you say increase or decrease/buy or sell. Suppose the Federal Reserve Bank buys Treasury securities. 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. d. the average number of times per year a dollar is spent. C. sell bonds lowering the, If The Fed decides to buy bonds & securities in the open market, it will likely: a. increase the money supply and decrease aggregate demand. If you knew the answer, click the green Know box. Assume that the Fed increases the monetary base by $1 billion when the reserve requirement is 1/7. E. discount rate operations. See Answer Ceteris paribus, if the Fed raised the required reserve ratio: Expert Answer Total reserves increase.B. Banks must hold more funds used for loans in reserve. \text{Total per category}&\text{?}&\text{?}&\text{? Facility location decisions are significant for an organization because:? $$ If the Fed sells bonds: A.aggregate demand will increase. \end{array} b. the Federal Reserve buys bonds on the open market. \text{Gross Margin}&\text{\hspace{5pt}1,369,250}&\text{\hspace{5pt}1,369,250}\\ C. Controlling the supply of money. C. influence the federal funds rate. b) borrow more from the Fed and lend less to the public. When the Fed decreases the discount rate, banks will a) borrow more from the Fed and lend more to the public. eachus, which of the following will occur if the Fed buys bonds through open-market operations? 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. Therefore the correct option is b: If the Federal Reserve increases the money supply, ceteris paribus, the rate of interest decreases. State tax on first $3,000: 1.5$ percent. \text{General and Administrative Expense}&\text{\hspace{12pt}425,000}&\text{\hspace{12pt}425,000}\\ When the Federal Reserve increases the discount rate, banks will borrow A. fewer reserves and decrease lending. 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. Check all that apply. Answer the question based on the following balance sheet for the First National Bank. The equilibrium price level and equilibrium output should both increase. d) decreases, so the money supply decreases. 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. Then, ceteris paribus, bank reserves , currency in circulation and thus the monetary base will decreases etary base by increasing bank reserves only. Use these flashcards to help memorize information. The lending capacity of the banking system decreases. 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. b) decreases the money supply and raises interest rates. By raising or lowering the _______, the Fed changes the cost of money for banks, which impacts the incentive to borrow reserves. Examples of money are: A. a check. The key decision maker for general Federal Reserve policy is the: Free . c) Increasing the money supply. The Federal Reserve conducts open market operations when it wants to [{Blank}]? Then click the card to flip it. 1. \begin{array}{lcc} C. decrease interest rates. 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. d) Lowering the real interest rate. According to the monetarist view, the aggregate supply curve is: Vertical at the natural rate of unemployment. If the Fed sells $1 million of government bonds, what is the effect on the economy's reserves and money supply? The paper argues that the process of financialization has profoundly changed how capitalist economies operate. Remember that the transfer price must be between the full manufacturing cost per unit of $175 and the market price of$250 of comparable imports into France. Our experts can answer your tough homework and study questions. (a) the money supply decreases, interest rates decline, GDP increases, and employment decreases (b) the money supply increases, interest rates increase, GDP decreases, 1) The Federal Reserve will lower short-run output by: a) Decreasing the money supply. . The required reserve. The nominal interest rates falls. The VOC was also the first recorded joint-stock company to get a fixed capital stock. 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. $140,000 in checkable-deposit liabilities and $46,000 in reserves. c. it borrows money, Consider how the following scenario would affect the money supply and, as a result, interest rates in the economy. A sale of treasury bills by the federal reserve _____ interest rates and _____ the money supply. Increase / Decrease b. B. purchases government bonds to decrease the money supply. \text{Expenses:}\\ The French import duty is charged on the price at which the product is transferred into France. In addition, the company had six partially completed units in its factory at year-end. b. the interest rate rises and this stimulates consumption spending. 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. Cause the money supply to increase, c. Not affect the money supply, d. Decrease the money multiplier. Aggregate demand will decrease or shift to the left. d) increases the money supply and lowers interest rates. Ceteris paribus, if the Fed raises the reserve requirement, then: The lending capacity of the banking system decreases. Suppose the Federal Reserve purchases mortgage-backed securities (MBS). 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. Given an inflationary gap, the Federal Reserve will use monetary policy to do what to interest rates and to aggregate demand? d) means by which the Fed supplies the, Suppose the Fed wishes to use monetary policy to close an expansionary gap. a) increases; decreases, b) decreases; increases, c) decreases; decreases, d) increases; increases. C. the Fed is seeking, All else equal, if the Federal Reserve decreases the money supply, interest rates will _ and the dollar will _ against other currencies. c. an increase in the demand for bonds and a rise in bond prices. 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. It allows people to obtain more goods than they can using money. Its policymakers are welcoming the recent slowdown in price increases, and the disinflation trend gives . As a result, the money supply will: a. increase by $1 billion. The money supply increases. a. C. the price level in the economy will rise, thus i. If not, how will the Central Bank control inflation? If the Fed sells government bonds, this will: A. Perform open market purchases of securities. The current account deficit will increase. c. has an expansionary effect on the money supply. (ii) instructs the New York Fed to sell government securities in the foreign exchange market. If $200,000 is deposited in the bank, then ceteris paribus: Excess reserves will increase by $170,000. c) buying and selling of government securities by the Treasury. d. a decrease in the quantity de. 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. Suppose the Federal Reserve buys 100 mortgage-backed securities in the open market. Instead of paying her for this service,the neighbor washes the professor's car. 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. 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. c. the money supply is likely to increase. \begin{array}{c} Note The higher the reserve requirement, the less profit a bank makes with its money. b) Lowering the nominal interest rate. a) 0.25 b) 0, Suppose the reserve requirement for checking deposits is 10 percent and banks do not hold any excess reserves. b. a decrease in the demand for money. Cause an excess demand for money and a decrease in the rate of interest. Lowers the cost of borrowing from the Fed, encouraging banks to make loans to the general public. Using the oversimplified money multiplier, the money suppl, Assume the reserve requirement is 10%. Generally, when the Federal Reserve lowers interest rates, investment spending [{Blank}] and GDP [{Blank}]. b. decrease the money supply and decrease aggregate demand. c. the money supply and the price level would increase. Monetary policy can help the Federal Reserve System to protect, influence, and increase benefits to the economy. Privacy Policy and It sells $20 billion in U.S. securities. \text{French import duty} & \text{20\\\%}\\ It needs to balance economic growth. Buy Treasury bonds, bills, or notes on the bond market. b. the Federal Reserve buys bonds on the open market. Get access to this video and our entire Q&A library, Monetary Policy & The Federal Reserve System. Raise discount rate 2. Ceteris paribus, if the Fed raises the reserve requirement, then: The lending capacity of the banking system decreases. \text{French income tax rate on the French division's operating income} & \text{45\\\%}\\ b. foreign countries only. The capital account surplus will increase. Name the three tools of monetary policy that the Federal Reserve System can do to combat inflation. When the Fed raises the reserve requirement, it's executing contractionary policy. To see how well you know the information, try the Quiz or Test activity. Consider an expansionary open market operation. c. an increase in the quantity of money demanded. Now suppose the Fed conducts an open market purchase of government bonds equal to $1, Fiscal policy is conducted by: a. The new reserve requirement exemption amount and low reserve tranche will be effective for all depository institutions beginning January 1, 2022. If the Fed conducts an open-market sale, bank reserves _ and the money supply is likely to _. If the Federal Reserve System buys government securities from commercial banks and the public: a. the money supply will contract. If the Fed uses open-market operations, should it buy or sell government securities? d. commercial bank, Assume all money is held in the form of currency. 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. Assume the Federal Reserve decides to sell $25 billion worth of U.S. Treasury bonds i. \textbf{ELEGANT LINENS}\\ Suppose the banks in the Federal Reserve System have $400 million in transactions accounts and the reserve requirement is 0.10. When the Fed conducts open market operations, the Fed buys and sells government securities to: a. the private sector. At what price per share did Wave Water issue common stock during 2012? Use a balance sheet to show the impact on the bank's loans. If the Fed decreases the money supply, GDP ________. If the required reserve ratio is 9%, what is the resulting change in checkable deposits (or the money supply), assuming that there are no cash leakages, Suppose that the reserve requirement for checking deposits is 10 percent and that banks do not hold any excess reserves. 1. The Great Depression was caused by a steep decline in the money supply when the stock market crashed in 1929. 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. \text{Total Expenses}&\text{\hspace{12pt}?}&\text{\hspace{12pt}? If the Fed is using open-market operations, will it, Key Concept: Open market operations When the Fed buys government securities, it a. 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. U.S.incometaxrateontheU.S.divisionsoperatingincome40%FrenchincometaxrateontheFrenchdivisionsoperatingincome45%Frenchimportduty20%Variablemanufacturingcostperchainsaw$100Fullmanufacturingcostperchainsaw$175Sellingprice(netofmarketinganddistributioncosts)inFrance$300\begin{matrix} To manage earnings more favorably, Elegant Linens considers changing the past-due categories as follows. $$ Ceteris paribus, what will occur if the Fed buys bonds through open-market operations? If market interest rates rise, the selling price of existing bonds in the market will, ceteris paribus, . $$ What happens to interest rates? An industry in which many firms produce similar products but each firm has significant brand loyalty is known as: Which of the following is characteristic of a perfectly competitive market? $$ That reduces liquidity and slows economic activity. The fixed monthly cost is $21,000, and the variable cost. a. 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. Which action would the federal reserve rate take to expand the money supply and lower the equilibrium interest rate? Answer: Answer: B. Here are the answers with discussion for yesterday's quiz. Interest Rates / Real GDP a. Compute the following for the current year: If the Fed purchases $10 million in government securities, then wh. $$ \text{Accounts receivable amount}&\text{\$\hspace{1pt}263,000}&\text{\$\hspace{1pt}134,200}&\text{\$\hspace{1pt}64,200}\\ Assuming this, how is the Fed likely to respond to fiscal stimulus if the economy is nearing full employment? Suppose the Federal Reserve engages in open-market operations. If the Fed sells $5 million worth of government securities to the public, what will be the change in the money supply? If the Fed sells $29 million worth of government securities in an open market operation, then the money supply can: A. increase by $2.9 million. During the last recession (2008-09. \text{Net Credit Sales}&\text{\$\hspace{1pt}1,454,500}&\text{\$\hspace{1pt}1,454,500}\\ Terms of Service. If the Federal Reserve commits to money supply growth of 2% per year and then the economy enters a recession, it would be time consistent to raise the growth rate to 5%. This problem has been solved! b. the money supply is likely to decrease. D.bond prices will rise, and interest rates will fall. Our experts can answer your tough homework and study questions. The shape of the curve determines the impact of an aggregate demand shift on prices and output. All rights reserved. Suppose the Fed conducts $10 million open market purchase from Bank A.
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