Suppose the economy is initially experiencing an inflationary gap. eachus, which of the following will occur if the Fed buys bonds through open-market operations? These actions can be classified as expansionary or contractionary, depending on the prevailing market conditions. 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. \text{Total per category}&\text{?}&\text{?}&\text{? It needs to balance economic growth. Also assume the Federal Reserve conducts an Open Market Operations purchase of U.S. Treasury securities in the amoun, Assume that the reserve requirement is 20 percent, banks do not hold excess reserves, and there is no cash held by the public. $$ 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. b. decrease the money supply and decrease aggregate demand. Here are the answers with discussion for yesterday's quiz. b. a. Our experts can answer your tough homework and study questions. Increase government spending. are in the same box the next time you log in. Ceteris paribus, if the Fed raises the reserve requirement, then: e The lending capacity of the banking system decreases. 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. If the Fed wants to raise short-term interest rates, it should a. act to increase the money supply. A perfectly competitive firm currently sells 30,000 cartons of eggs at $1.25 each. c. Purchase government bonds on the open market. Ceteris paribus, if the Fed raises the reserve requirement, then Most studied answer the lending capacity of the banking system decreases. The sale of bonds to the Fed by the public C. Increases in banks' excess reserves D. Increases in. What impact would this action have on the economy? }\\ If the Fed conducts an open-market sale, bank reserves _ and the money supply is likely to _. One HEADLINE article in the text has the title "Fed cuts key interest rate half-point to 1 percent." C. the price level in the economy will rise, thus i. 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-Ceteris paribus, an increase in the interest rate would lead to a fall in investment due to an inward shift of the investment line. Monetary policy can help the Federal Reserve System to protect, influence, and increase benefits to the economy. If the Fed purchases $10 million in government securities, then wh. Savings accounts and certificates of deposit are called. d. raise the treasury bill rate. Professor Williams tutors her next-door neighbor's son in economics. Q02 . b. buys bonds from banks, which increases bank reserves. (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. b. means by which the Fed supplies the economy with currency. All other trademarks and copyrights are the property of their respective owners. An expansionary fiscal policy is when a. the government lowers spending and raises taxes. The Fed is most likely to do this by: A. purchasing government bonds from the public B. selling government bonds to the public C. selling government bonds to the treasury D. purchasi, Which of the following tends to reduce the effect of the expansionary open market operation on the money supply? 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. b. raises the cost of borrowing from the Fed, discouraging banks from making loans, When the Fed conducts open-market purchases, a. it buys Treasury securities, which increases the money supply. d) All of the above. Suppose further that the required reserve, Explain briefly: a. Changing the reserve requirement is expensive for banks. c) an open market sale. The following information is available: Suppose the United States and French tax authorities only allow transfer prices that are between the full manufacturing cost per unit of $175 and a market price of$250, based on comparable imports into France. 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. b. sell government securities. This problem has been solved! In the money market, an excess demand of money will: A. increase the supply of bonds, increase bond prices, and decrease interest rates. The Fed decides that it wants to expand the money supply by $40 million. It improves aggregate demand, thus increasing the country's GDP. The aggregate demand curve should shift rightward. Interest rates typically rise in a recession because the demand for money increases when real income falls. To manage earnings more favorably, Elegant Linens considers changing the past-due categories as follows. c. the money supply is likely to increase. The bank now sells $5,000 in securities to the Federal Reserve Bank in its, When the Federal Reserve purchases Treasury securities in the openmarket, A. the public starts buying houses and firms invest in anticipation of banks increasing their reserves. Raises the cost of borrowing from the Fed, discouraging banks from ma, If the Federal Reserve System buys government securities from commercial banks and the public: A. commercial bank reserves will decline B. commercial bank reserves will be unaffected C. it will be easier to obtain loans at commercial banks D. the money su, Suppose that the Fed purchases from bank A some bonds in the open market and that, before the sale of bonds, bank A had no excess reserves. Ceteris paribus, if the Fed reduces the reserve requirement ratio, then: A) The lending capacity of the banking system increases. 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 ______. \end{array} Suppose that banks are able to issue private IOU's, such that individuals deposit goods with the bank and the bank can promise a return on the deposit. 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. b) increases the money supply and lowers interest rates. 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. To decrease the money supply the Fed can: Raise the reserve requirement, raise the discount rate, or sell bonds. Why does an open market purchase of Treasury securities by the Federal Reserve increase bank reserves? Wave Waters total liabilities on December 31, 2012, are $7,800. Check all that apply. \text{Gross Margin}&\text{\hspace{5pt}1,369,250}&\text{\hspace{5pt}1,369,250}\\ The money supply decreases. 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? Required reserves decrease. What is the reserve-deposit ratio? Total deposits decrease. The buying and selling of government bonds by the Fed to control bank reserves and the money supply are operations known as a. c. real income increases. b. prices to increase by 3%. 26. All other trademarks and copyrights are the property of their respective owners. When the Federal Reserve System buys government securities on the open market: A. the money supply will decrease. Raise discount rate 2. Ceteris paribus, an increase in _______ will cause an increase in ______. 3 . 41. E.the Phillips curve will shift down. The result will be a in the money market and a in the bond market, which will push bond prices and interest rates will unti, Starting from a monetary equilibrium condition, an increase in the money supply A. increases the bond price and increases the interest rate. C. The nominal interest rate does not change. C. Controlling the supply of money. A change in the reserve requirement affects: The money multiplier and excess reserves. Currency, transactions accounts, and traveler's checks. 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). 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 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) overseeing the buying and selling of government securities in the open market. B. d. commercial bank, Assume all money is held in the form of currency. d) borrow reserves from the Federal Reserve. C.banks' reserves will be reduced. \text{Net Income (Loss)}&\text{\hspace{12pt}?}&\text{\hspace{12pt}? They will increase. At what price per share did Wave Water issue common stock during 2012? It also raises the reserve ratio. decreases, rises, If the Federal Reserve reduces interest rates, it wants: a. c) buying and selling of government securities by the Treasury. D. decrease, Assume that the Federal Reserve establishes a minimum reserve requirement of 12.5%. B. are the minimum amount of reserves a bank is required to hold. When you've placed seven or more cards in the Don't know box, click "retry" to try those cards again. \textbf{Comparative Income Statements}\\ Instead of paying her for this service,the neighbor washes the professor's car. 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. If the Fed sells $5 million worth of government securities to the public, what will be the change in the money supply? b. decrease, upward. b. it buys Treasury securities, which decreases the money supply. b) the federal reserve must raise interest rates and lower the required reserve ratio, If the Federal Reserve ("Fed") engages in the contractionary monetary policy then: A. the Fed is seeking to decrease the money supply and lower interest rates to lower inflation. If there is a recession, the Fed would most likely a. encourage banks to provide loans by. (a) Show how t. When the central bank sells government bonds does it do so by applying monetary policies such as expansionary and deflationary policies or do they sell them to specific buyers? c. Offer rat, 1. Which of the following could cause a recession? 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. Transcribed Image Text: Question Now we introduce banks that will act as liquidity providers in the economy. An increase in the money supply and an increase in the int. d. the demand for money. Ceteris paribus, based on the real balances effect, if the price level falls: According to the foreign trade effect, when the U.S. price level decreases, U.S. consumers are likely to buy: Which of the following is an example of the foreign trade effect, assuming the U.S. price level decreases? 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? d. The Federal Reserve sells bonds on the open market. Privacy Policy and If the Federal Reserve increases the nominal money supply by 5 % and real income increases by 2%, then we would expect: a. prices to increase by 5%. During the year, the company started and completed 45 motor homes at a cost of $\$ 55,000$ per unit. 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. 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%. b. sell bonds, thus driving down the interest rate. The Fed approved a 0.25 percentage point rate hike, the first increase since December 2018. Is this an example of fiscal policy or monetary policy? a. Which of the following is consistent with what Keynes believed? c. has an expansionary effect on the money supply. Suppose that the sellers of government securities redeem these checks drawn on the New York Fed for currency. 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. &\textbf{0-60 days}&\textbf{61-120 days}&\textbf{Over 120 days}\\ 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? The Great Depression was caused by a steep decline in the money supply when the stock market crashed in 1929. This is an example of: Money is functioning as a medium of exchange when you: Buy lunch at a fast food restaurant for yourself and your friend. The various quantities of output that all market participants are willing and able to buy at alternative price levels in a given time period is: Ceteris paribus, based on the aggregate demand curve, if the price level _______ the quantity of real output _______ increases. $$ Fiscal policy should be used to shift the aggregate demand curve. e. raise the reserve requirement. The money supply increases. 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 ____. The Federal Reserve carries out open-market operations, purchasing $1 million worth of bonds from banks. The Burton Company manufactures chainsaws at its plant in Sandusky, Ohio. 1. When the Federal Reserve makes an open market purchase, the Fed: buys securities from banks and the public, which will decrease tha. 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. Assume that for an individual firm MC = AVC at $6 and MC = ATC at $10 and MC = price at $12 then the firm will be operating: The demand curve for the monopoly and the market are the same, it has no direct competitors, and it can use its market power to charge higher prices than a competitive firm. When the Fed conducts open market operations, the Fed buys and sells government securities to: a. the private sector. Suppose the banks in the Federal Reserve System have $400 million in transactions accounts and the reserve requirement is 0.10. 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? Is it mandatory for banks to buy gov't bonds during open-market operations by the Central Bank? Open-market operations occur when the Federal Reserve: a. buys U.S. Treasury bills from the federal government. Working Paper No.
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