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. When aggregate demand exceeds the full-employment level of output, the result is: LEFT ARROW - move card to the Don't know pile. If the Federal Reserve increases the money supply, ceteris paribus, the: Money supply is defined as all the currency and other liquid instruments held by banks/individuals in a country's economy in a given time. Biagio Bossone. b. buys or sells foreign currency. }\\ 1. Ceteris paribus, if the reserve requirement is decreased to 0.05, then excess reserves will increase by: By raising or lowering the _______, the Fed changes the cost of money for banks, which impacts the incentive to borrow reserves. Wave Waters total liabilities on December 31, 2012, are $7,800. How will the lending capacity of the banking system be affected if the reserve requirement is 5 percent? Suppose the banks in the Federal Reserve System have $100 million in transactions accounts and the reserve requirement is 0.10. If there is an adverse supply shock and the Federal Reserve responds by increasing the growth rate of the money supply, then in the short run the Federal Reserve's action: a. lowers both inflation and unemployment b. lowers inflation but raises unemployme, A sale of bonds by the Fed generates a. a decrease in the demand for money balances. d. the price level decreases. B. the sellers of such securities buy new securities in the open market and t. Assume there is no leakage from the banking system and that all commercial banks are loaned up. 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. U.S.incometaxrateontheU.S.divisionsoperatingincome40%FrenchincometaxrateontheFrenchdivisionsoperatingincome45%Frenchimportduty20%Variablemanufacturingcostperchainsaw$100Fullmanufacturingcostperchainsaw$175Sellingprice(netofmarketinganddistributioncosts)inFrance$300\begin{matrix} }\\ Ceteris paribus, if the Fed reduces the reserve requirement ratio, then: A) The lending capacity of the banking system increases. If not, how will the Central Bank control inflation? The velocity of money is a. the rate at which the Fed puts money into the economy. Raise the reserve requirement, increase the discount rate, or . &\textbf{0-60 days}&\textbf{61-120 days}&\textbf{Over 120 days}\\ Suppose the Federal Reserve buys 100 mortgage-backed securities in the open market. The following is the past-due category information for outstanding receivable debt for 2019. Cause an excess demand for money and a decrease in the rate of interest. B. B. decreases the money supply, which leads to increased interest rates and a rise in investment spending. Which of the following lends reserves to private banks? c. means by which the Fed acts as the government's banker. $140,000 in checkable-deposit liabilities and $46,000 in reserves. If the fed increases the money supply, what will happen to each of the following (other things being equal)? c) overseeing the buying and selling of government securities in the open market. \text{Direct materials used} \ldots & \$ 750,000\\ c. Decrease interest rates. Privacy Policy and C. excess reserves at commercial banks will increase. d. velocity increases. On March 5 and 6, I surveyed over 500 consumers about their concerns about COVID-19, awareness of the Fed's . b. Price charged is always less than marginal revenue. Conduct open market purchases. B. federal bond operations. 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)? 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. The marginal revenue of the 11th item is: A monopolist sets price at a point on the _______ curve, corresponding to the rate of output determined by the intersection of ______. A. decreases; decreases B. decreases; increases C. increases; decreases D. increases. B. E.the Phillips curve will shift down. It sells $20 billion in U.S. securities. d. the demand for money. B. decrease the discount rate. receivables. Cause the money supply to decrease, b. Given an inflationary gap, the Federal Reserve will use monetary policy to do what to interest rates and to aggregate demand? Open market operations. Which of the following indicates the appropriate change in the U.S. economy? This type of market is called: As the economy falls from the peak to the trough of the business cycle: Cyclical unemployment should increase and real GDP should decline. a. decrease, downward. Working Paper No. The result is that people a. increase the supply of bonds, thus driving up the interest rate. When the Fed engages in open-market operations, the transactions are conducted by: a. the Open Market Desk at the Federal Reserve Bank of New York. 41. When you need a break, try one of the other activities listed below the flashcards like Matching, Snowman, or Hungry Bug. By the end of the year, over $40 billion of wealth had vanished. Holding the deposits or reserves of commercial banks. B. purchases government bonds to decrease the money supply. Multiple Choice . Ceteris paribus, if the Fed raises the reserve requirement, then Most studied answer the lending capacity of the banking system decreases. Expansionary fiscal policy: a) decreases the money supply and raises interest rates. b. Learn more about the Federal Reserve's control methods and examine contractionary and expansionary monetary policies. To manage earnings more favorably, Elegant Linens considers changing the past-due categories as follows. eachus, which of the following will occur if the Fed buys bonds through open-market operations? b. d. prices to remain constant. Answer: D. 15. 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. A. change the liquidity levels of banks. The creation of a Federal Reserve System was recommended by. c. buy bonds, thus driving up the interest rate. The key decision maker for general Federal Reserve policy is the: Free . [Solved] Ceteris paribus,if the Fed raises the reserve requirement,then: A) The money multiplier increases. - 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. C. contractionary monetary policy by, An open market sale by the Fed A. increases the money supply, which leads to increased interest rates and a fall in investment spending. The company has marketing divisions throughout the world. Suppose further that the required reserve, Explain briefly: a. Assume that the currency-deposit ratio is 0.5. What effect will this open market operation have on demand deposits and M1? What happens to interest rates? Compute the following for the current year: B. an exchange between a private bank and the Federal Reserve where the Fed buys or sells government bonds to private banks. Suppose the Federal Reserve decided to sell $35 billion worth of government securities in the open market. "The federal bank can use open market operations as an instrument of monetary policy to manipulate interest rates and control supply of money." Fill in either rise/fall or increase/decrease. The buying and selling of government bonds by the Fed to control bank reserves and the money supply are operations known as a. Total deposits decrease. The aggregate demand curve should shift rightward. C. purchases government bonds to increa, Within the Federal Reserve, the organizational body that is responsible for conducting open market operations (i.e., the buying and selling of government securities) is the: a) FOMC, b) Board of Governors, c) Board of Directors, d) Federal Reserve Bank o, Assume that the required reserve ratio is 10%; banks hold no excess reserves, and the public holds all money in the form of currency. Ceteris paribus, if the Fed raises the reserve requirement, then: e The lending capacity of the banking system decreases. Why does an open market purchase of Treasury securities by the Federal Reserve increase bank reserves? Our experts can answer your tough homework and study questions. Assume that banks use all funds except required, 13. 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. \text{Total Expenses}&\text{\hspace{12pt}?}&\text{\hspace{12pt}? &\textbf{0-30 days}&\textbf{31-90 days}&\textbf{Over 90 days}\\ 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. When the Fed decreases the discount rate, banks will a) borrow more from the Fed and lend more to the public. a. Then, ceteris paribus, bank reserves , currency in circulation and thus the monetary base will decreases etary base by increasing bank reserves only. 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. __ Money paid to stockholders from earnings of a corporation. b. the Federal Reserve buys bonds on the open market. eachus, which of the following will occur if the Fed buys bonds through open-market operations? If the Federal Reserve increases the discount rate: a. the federal funds rate must decrease. b. the price level increases. \text{Total per category}&\text{?}&\text{?}&\text{? Figure 14.10c depicts the aggregate investment function of an economy. c. state and local government agencies only. An open market operation is ____?A. then the Fed. Toby Vail. }\\ Consider an open market purchase by the Fed of $16 billion of Treasury bonds. Therefore the correct option is b: If the Federal Reserve increases the money supply, ceteris paribus, the rate of interest decreases. c. When the Fed decreases the interest rate it p; They will increase. Look at the large card and try to recall what is on the other side. D. all of the above. 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. b. the money supply is likely to decrease. d. decrease the discount rate. Corporate finance for the pre-industrial world began to emerge in the Italian city-states and the low countries of Europe from the 15th century.. a. b. foreign countries only. **Instructions** We develop a model of price formation in a dealership market where monitoring of the information flow requires costly effort. b. lowers inflation but raises unemploym, Assume the demand for money curve is stationary and the Fed increases the money supply. The lending capacity of the banking system decreases. c. Purchase government bonds on the open market. 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. 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. It forces them to modify their procedures. a. 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. Professor Williams tutors her next-door neighbor's son in economics. Suppose a bank has $50,000 in transactions accounts and a minimum reserve requirement of 10 percent. c. prices to increase by 2%. D. $100,000 in checkable-deposit liabilities and $30,000 in reserves. Tax on amount over $3,000 :3 percent. Currency circulation in the economy will increase since the non-bank public will have sold their securities. Assuming the economy is in the upward sloping portion of the eclectic aggregate supply curve, what should happen to the price level and output as a result of the Fed's action, ceteris paribus? b. b. rate of interest decreases. lower reserve requirements.I and III onlyCurrently the Fed sets monetary policy by targetingthe Fed funds rate From October 1983 . the process of selling Fed-issued IOUs between banks. Make sure to remember your password. D.bond prices will rise, and interest rates will fall. b) means by which the Fed acts as the government's banker. D. conduct open market sales. B. excess reserves at commercial banks will decrease. In terms of pricing, which of the following is not true for a monopolist? c. an increase in the demand for bonds and a rise in bond prices. 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. The U.S. Treasury c. The U.S. Mint d. The federal government And involves: a. Quantitative easing b. 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. a) Describe what initially happens to the reserves of bank B. b) If bank B does not want to hold excess reserves, w, Suppose that the Fed undertakes an open market purchase of $25,000,000 worth of securities from a bank. Use a balance sheet to show the impact on the bank's loans. Aggregate supply will increase or shift to the right. Name the three tools of monetary policy that the Federal Reserve System can do to combat inflation. Any import duty paid to the French authorities is a deductible expense for calculating French income taxes. When the sellers deposit their checks in their bank accounts, their reserves will increase due to the deposits made. Interest Rates / Real GDP a. A. Decrease the discount rate. 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. You'll get a detailed solution from a subject matter expert that helps you learn core concepts. 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. Interest rates b. The deposit-creation potential of the banking system is: Suppose the entire banking system has $10,000 in excess reserves and a required reserve ratio of 20 percent. b) Lowering the nominal interest rate. 2. b. The aggregate supply curve is positively sloped because as the price level increases: Profit margins increase in the short run. }\\ 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? 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. \end{array} Suppose government spending increases. A. A. Which of the following functions does the Fed perform? It is considered to be less efficient for an economy than the use of money. c. first purchase, then sell, government securities. Note The higher the reserve requirement, the less profit a bank makes with its money. Raise reserve requirements 3. View Answer. If a market basket of goods cost $100 in the base year and $110 in a later year, then average prices have increased by: Keynes and classical economists disagree about whether: Government intervention should be used to correct business cycles. It also raises the reserve ratio. They will remain unchanged. $$ A) Increase money supply to decrease interest rates, increase i. Expansionary monetary policy: a) decreases government spending and/or raises taxes. D. The collectio. Raise discount rate 2. \text{Full manufacturing cost per chainsaw} & \text{\$175}\\ Suppose the bond market and the money market both start out in equilibrium and then the Federal Reserve increases the money supply. A combination of flexible rules and limited discretion. FROM THE STUDY SET \begin{array}{l r} 2. If the Fed uses open-market operations, should it buy or sell government securities? \text{Direct labor} \ldots & 800,000\\ What are some basic monetary policy tools used by the Fed? b. buys bonds from banks, which increases bank reserves. d. The Federal Reserve sells bonds on the open market. Then click the card to flip it. The monetary base in the economy will increase. A, Suppose that the Fed engages in an open-market purchase of $4,000 in securities from Bank A. 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. B. decreases the bond price and decreases the interest rate. 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). Now suppose the. Increase the demand for money. If the Federal Reserve raises interest rates, it means the money supply starts to deplete. \text{General and administrative expenses} \ldots & 500,000 \\ It creates money, it creates a transactions-account balance for the borrower, and the money supply increases. When the economy overheats, the government sometimes cools it down with higher taxes, spending reductions, and less money. In response, people will a. sell bonds, thus driving up the interest rate. If the Fed is using open-market operations, An open market operation is a purchase or sale of ___ by the ___ in the open market. Your email address is only used to allow you to reset your password. b. increase the money supply. Which of the following lends reserves to private banks? c. the money supply and the price level would increase. Its marginal revenue curve is below its demand curve. 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. Also assume that banks do not hold excess reserves and there is no cash held by the public. D. open bonds operations. Assume the reserve requirement is 5%. If the market price was below the ATC and at the current firm's rate of production the MC was less than the market price an increase in output would: increase profit but economic profits would still be negative. Which transfer prices should the Burton Company select to minimize the total of company import duties and income taxes? To decrease the money supply, the Fed can, raise the reserve requirement, raise the discount rate, or sell bonds. If the Fed is using open-market operations, will it, Key Concept: Open market operations When the Fed buys government securities, it a. raise the discount rate. \text{Total per category}&\text{?}&\text{?}&\text{? Savings accounts and certificates of deposit are called. Which of the following is likely to cause a leftward shift in the aggregate supply curve, ceteris paribus? If there is a recession, the Fed would most likely a. encourage banks to provide loans by. 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. Q01 . e. increase inflation. D. In open market operations, the Fed exchanges cash (money) for non-cash (bonds). The equilibrium price level and equilibrium output should both increase. Increase the reserve requirement. Perform open market purchases of securities. Increase / Increase c. Decrease / Decrease d. Decrease / Increase e. Decrease / No change, When the Fed implements a contractionary monetary policy this means that: (a) the price of T-Bills rises (b) the interest rate paid on T-Bills falls (c) the Federal Funds Rate increases (d) none o, 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 ______. Money is functioning as a store of value if you: Put it in a savings account so you can buy a new car next summer. If the Fed sells $1 million of government bonds, what is the effect on the economy s reserves and money supply? If the Fed decides to engage in an open market operation to increase the money supply, what will it do? The price level to decrease c. Unemployment to decrease d. Investment to decrease. Bank A with total deposits of $100 million isfully loaned up. What types of accounts are listed on the post-closing trial balance? In order to increase sales by one item per month, the monopolist must lower the price of its software by $1 to $49. When the Federal Reserve makes an open market purchase, the Fed: If the federal reserve injects $3,000 into the banking system through open market operations, did the federal reserve buy or sell government bonds? Over the 30-year life of the. $$ Inflation rate _____. c) not change. Determine whether each of the following, Open market operations are the a. buying and selling of Federal Reserve Notes in the open market. By raising or lowering the _______, the Fed changes the cost of money for banks, which impacts the incentive to borrow reserves. 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? \text{General and Administrative Expense}&\text{\hspace{12pt}425,000}&\text{\hspace{12pt}425,000}\\ \text{Accounts receivable amount}&\text{\$\hspace{1pt}263,000}&\text{\$\hspace{1pt}134,200}&\text{\$\hspace{1pt}64,200}\\ Terms of Service. How does the Federal Reserve regulate the money supply? Currency, transactions accounts, and traveler's checks. A perfectly competitive firm currently sells 30,000 cartons of eggs at $1.25 each. a. a. use open market operations to buy Treasury bills b. use open market operations to sell Treasury bills c. use discount policy to raise the disc. Which of the following is likely to occur if OPEC increases the amount of oil it supplies and domestic energy prices fall, ceteris paribus? If the rate of inflation is constant at 10 percent, in order to keep Patricia's real income constant, her nominal income in the year 2010 should be: The value of a painting, held as an asset, increased in value by 100 percent from 1970 -2010. C. decreases, 1. Ceteris paribus, based on the aggregate supply curve, if the price level _______ the quantity of real output _______ increases. Open-market operations occur when the Federal Reserve: a. buys U.S. Treasury bills from the federal government. In order to decrease the money supply, the Fed can. 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. 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 ______. Ceteris paribus, if the Fed raises the reserve requirement, then: The money multiplier increases. During the year, the company started and completed 45 motor homes at a cost of $\$ 55,000$ per unit. c) buying and selling of government securities by the Treasury. If the price of computers falls during a period when the average price level remains constant, which of the following has occurred? 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. Suppose the Federal Reserve buys government securities from the non-bank public. Suppose that the sellers of government securities deposit the checks drawn on the New York Fed into their bank account. b) increases the money supply and lowers interest rates. 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. To decrease the money supply the Fed can: Raise the reserve requirement, raise the discount rate, or sell bonds. Assume central bank money (H) is initially equal to $100 million. C. money supply. The required reserve. $$ b) increase. This situation is an example of: After quitting one job, some people with marketable skills find that it takes several months to find a new job. D) Required reserves decrease. Ceteris paribus, an increase in _______ will cause an increase in ______. b) an increase in the money supply and a decrease in the interest rate. Suppose the Federal Reserve purchases mortgage-backed securities (MBS). c. reduce the reserve requirement. 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. Keynes viewed the economy as inherently unstable and suggested that during a recession policy makers should: Cut taxes and/or increase government spending. \text{Total uncollectible? The capital account surplus will increase. What is meant by open market operations? If they have it, does that mean it exists already ? The Federal Reserve conducts open market operations when it wants to [{Blank}]? One HEADLINE article in the text has the title "Fed cuts key interest rate half-point to 1 percent." d) borrow reserves from the Federal Reserve. Suppose the U.S. government paid off all its debt. 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. c. Offer rat, 1. All other trademarks and copyrights are the property of their respective owners. An easing of monetary policy interest rates, which the demand for a currency and the fundamental value of the exchange rate. If the Fed uses open-market operations, should it buy or sell government securities? 23. C. The lending capacity of the banking system increases. Buy Treasury bonds, bills, or notes on the bond market. b. increase causing an increase in investment spending shifting aggregate demand, When the Federal Reserve increases the money supply, it aggregate demand and moves the economy along the Phillips curve to a point with inflation and unemployment. 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. All rights reserved. Total costs for the year (summarized alphabetically) were as follows: Monetary policy can help the Federal Reserve System to protect, influence, and increase benefits to the economy. C) Excess reserves increase. B. a dollar bill. b. it will be easier to obtain loans at commercial banks. \text{Total uncollectible? State tax on first $3,000: 1.5$ percent. Suppose the Federal Reserve undertakes an open market purchase of government bonds. D. The value o, If the nominal interest rate were to increase, then: a. money demand decreases and the price level increases. B) The lending capacity of the banking system decreases. b. prices to increase by 3%. 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?
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