The Treasury buys bonds in the open market c. The Fed reduces reserve requirements d. The Treasury sells b. b. buys or sells foreign currency. c. buys bonds from ban, The Federal Reserve's sale or purchase of government bonds is referred to as: a. open market operations b. credit rationing c. quantitative easing d. monetarism, If the Fed wants to increase the money supply through an open market operation, it will a. purchase government securities. 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. 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? 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. State tax on first $3,000: 1.5$ percent. b. prices to increase by 3%. The key decision maker for general Federal Reserve policy is the: Free . Generally, the central bank. 2. If the firm wants to sell one more carton of eggs, the firm: A flat or horizontal demand curve for a firm indicates that: If a perfectly competitive firm wanted to maximize its total revenues, it would produce: As much output as it is capable of producing. d. the average number of times per year a dollar is spent. Suppose the Federal Reserve Bank buys Treasury securities. D. Decrease the supply of money. a. 2. 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. The paper argues that the process of financialization has profoundly changed how capitalist economies operate. Otherwise, click the red Don't know box. Could the Federal Reserve continue to carry out open market operations? 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? They will remain unchanged. Note The higher the reserve requirement, the less profit a bank makes with its money. When aggregate demand equals aggregate supply at the average price level. 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 ______. b. decrease the money supply and decrease aggregate demand. 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 ______. In the money market, an excess demand of money will: A. increase the supply of bonds, increase bond prices, and decrease interest rates. Privacy Policy and A. (Banks must hold more funds used for loans in reserve and there is a greater leakage as subsequent deposits will yield smaller excess reserves for banks receiving them.) \text{Total per category}&\text{?}&\text{?}&\text{? \begin{array}{lcc} c) an open market sale. b. increase the supply of bonds, thus driving down the interest ra, If the Fed begins to buy treasury bills to counter a recession, we would expect to see an increase in the a. demand for money. a. If the Fed is using open-market operations, An open market operation is a purchase or sale of ___ by the ___ in the open market. a. decrease, downward. D. all of the above. 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. In order to decrease the money supply, the Fed can. c. state and local government agencies only. In the short run, the quantity of money demanded [{Blank}] and the nominal interest rate [{Blank}]. 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. foreign countries only. It forces them to modify their procedures. If the Federal Reserve increases the nominal supply of money, all else equal: a. the demand for money increases. 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. $$ d) Lowering the real interest rate. 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? B. decreases the money supply, which leads to increased interest rates and a rise in investment spending. Raise reserve requirements 3. }\\ 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). a. 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%. 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. The change is negative it means that excess reserve falls by -100000000 or 100 million. c. means by which the Fed acts as the government's banker. The reserve ratio is 20%. b. engage in open market purchases of government securities. Ceteris paribus, an increase in _______ will cause an increase in ______. 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. d. lower reserve requirements. a. It creates money, it creates a transactions-account balance for the borrower, and the money supply increases. 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. a. The Federal Reserve calculates and provides reserve balance requirements before the start of each maintenance period to depository institutions via the Reserves Central--Reserve Account Administration, which is available on the Federal Reserve Bank Services website. E. discount rate operations. receivables. The buying and selling of government securities by the Fed is known as: A. open market operations. Increase / Decrease b. Answer the question based on the following balance sheet for the First National Bank. 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? A) Increase money supply to decrease interest rates, increase i. Expansionary monetary policy: a) decreases government spending and/or raises taxes. Multiple Choice . To manage earnings more favorably, Elegant Linens considers changing the past-due categories as follows. Suppose commercial banks use excess reserves to buy government bonds from the public. c. Offer rat, 1. Lowers the cost of borrowing from the Fed, encouraging banks to make loans to the general public. B.bond prices will fall, and interest rates will fall. If the Fed uses open-market operations, should it buy or sell government securities? D. The collectio. They will increase. One HEADLINE article in the text has the title "Fed cuts key interest rate half-point to 1 percent." copyright 2003-2023 Homework.Study.com. Some terms may not be used. c. the money supply and the price level would increase. Total reserves increase.B. a. The Burton Company manufactures chainsaws at its plant in Sandusky, Ohio. 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. Suppose a market is dominated by three firms. b. a decrease in the demand for money. 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%. $$. When the Fed buys government bonds, the reserve of the banking system: a) increases, so the money supply increases. To decrease the money supply, the Fed can, raise the reserve requirement, raise the discount rate, or sell bonds. Cost of finished goods manufactured. All rights reserved. The immediate result of this transaction is that M1: If Edgar takes $100 out of his savings account and deposits it into his checking account, the immediate result of this transaction is that M1: What does not occur when a bank makes a loan? 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)? Acting as fiscal agents for the Federal government. Banks must hold more funds used for loans in reserve. Our experts can answer your tough homework and study questions. d. lend more reserves to commercial banks. Toby Vail. If the price of computers falls during a period when the average price level remains constant, which of the following has occurred? Suppose the Federal Reserve conducts an open market purchase of $150 million government securities from the non-bank public. U.S. goods are less expensive for Americans so they buy fewer imports and more domestic goods. What cannot be used to shift aggregate demand? Multiple . \textbf{Comparative Income Statements}\\ If the Federal Reserve decreases money supply, then a) The money supply curve will shift up and interest rates will increase b) The money supply curve will shift up and interest rates will decrease. b. 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. Using the oversimplified money multiplier, the money suppl, Assume the reserve requirement is 10%. 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). d) borrow reserves from the Federal Reserve. $$ 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. The current account deficit will increase. 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. The sale of bonds to the Fed by the public C. Increases in banks' excess reserves D. Increases in. The Fed lowers the federal funds rate. b. Which of the following could cause a recession? 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. c. the interest rate rises and this. The Board of Governors has___ members, and they are appointed for ___year terms. c. the government increases spending and lowers taxes. Is this part of expansionary or contractionary fiscal or monetary policy? In the short run, if the Fed wants to raise the federal funds rate, it: (i) instructs the New York Fed to sell government securities in the open market. B. there is an excess demand for bonds, so those looking to borrow by selling bonds can do so at a lower interest rate. The lending capacity of the banking system decreases. 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. If you've accidentally put the card in the wrong box, just click on the card to take it out of the box. \text{Total uncollectible? Total deposits decrease. The Federal Reserve expands the money supply by 5 percent. Check all that apply. Change in Excess Reserve = -100000000. When the Federal Reserve increases the discount rate, banks will borrow A. fewer reserves and decrease lending. 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? c-A forecast of a permanent demand increase shifts the investment line . The number and relative size of firms in an industry. b. it will be easier to obtain loans at commercial banks. d) means by which the Fed supplies the, Suppose the Fed wishes to use monetary policy to close an expansionary gap. }\\ 1. 1. d. the U.S. Treasury. d. prices to remain constant. b) increase. Professor Williams tutors her next-door neighbor's son in economics. 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. If the Fed wants to increase the money supply through an open market operation, it will a. purchase government securities. In terms of pricing, which of the following is not true for a monopolist? 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. a) 0.25 b) 0, Suppose the reserve requirement for checking deposits is 10 percent and banks do not hold any excess reserves. C. money supply. Ceteris paribus, if the reserve requirement is decreased to 0.05, then excess reserves will . Federal Reserve purchases of government bonds ______________ total reserves and _________________ the money supply. D) there is no effect on bond yields. (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. the Fed is concerned about high unemployment rates. \text{Variable manufacturing cost per chainsaw} & \text{\$100}\\ &\textbf{past due}&\textbf{past due}&\textbf{past due}\\[5pt] 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. Embed Code - If you would like this activity on your web page, copy the script below and paste it into your web page. Suppose the Federal Reserve buys government securities from the non-bank public. \text{Direct labor} \ldots & 800,000\\ If the Fed raises the reserve requirement, the money supply _____. Figure 14.10c depicts the aggregate investment function of an economy. If the Open-Market Committee of the Federal Reserve sells securities, this action tends to: a. decrease the money supply. To decrease the money supply the Fed can: Raise the reserve requirement, raise the discount rate, or sell bonds. According to the monetarist view, the aggregate supply curve is: Vertical at the natural rate of unemployment. What effect will this open market operation have on demand deposits and M1? 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. When you need a break, try one of the other activities listed below the flashcards like Matching, Snowman, or Hungry Bug. Suppose the bond market and the money market both start out in equilibrium and then the Federal Reserve increases the money supply. Also assume that banks do not hold excess reserves and there is no cash held by the public. Assume central bank money (H) is initially equal to $100 million. b. money demand increases and the price level decreases. Inflation rate _____. 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
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