Although it may feel like you're playing a game, your brain is still making more connections with the information to help you out. Price charged is always less than marginal revenue. Federal Reserve purchases of government bonds ______________ total reserves and _________________ the money supply. Assuming this, how is the Fed likely to respond to fiscal stimulus if the economy is nearing full employment? b. decrease the money supply and decrease aggregate demand. d. the price level decreases. 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. That reduces liquidity and slows economic activity. Road Warrior Corporation began operations early in the current year, building luxury motor homes. Which of the following indicates the appropriate change in the U.S. economy? Use a balance sheet to show the impact on the bank's loans. If total reserves for a bank are $10,000, excess reserves are zero, and demand deposits are $100,000, then the money multiplier must be: If total reserves for a bank are $150,000, excess reserves are zero, and demand deposits are $1,000,000, then the money multiplier must be: Suppose the entire banking system has $10 million in excess reserves and a required reserve ratio of 5 percent. An expansionary fiscal policy is when a. the government lowers spending and raises taxes. b. increase the supply of bonds, thus driving down the interest rate. Which of the following functions does the Fed perform? 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. All rights reserved. If the Fed raises the reserve requirement, the money supply _____. d. The Federal Reserve sells bonds on the open market. Now suppose the. Increase government spending. One HEADLINE article in the text has the title "Fed cuts key interest rate half-point to 1 percent." A stock person who is laid off by a department store because retail sales across the country have decreased is _______ unemployed. If the Open-Market Committee of the Federal Reserve sells securities, this action tends to: a. decrease the money supply. Raise the reserve requirement, increase the discount rate, or . Explain. $140,000 in checkable-deposit liabilities and $46,000 in reserves. d. raise the treasury bill rate. Ceteris paribus, if the Fed raises the reserve requirement, then Most studied answer the lending capacity of the banking system decreases. B. federal bond operations. Issuanceofstock.Cashdividends.Balance,December31,2012.$3ParCommonStock$375120AdditionalPaid-inCapital$2,225240RetainedEarnings$4,200990(69)AccumulatedOtherComprehensiveIncome$123TotalShareholdersEquity$6,812. Ceteris paribus, what will occur if the Fed buys bonds through open-market operations? When you need a break, try one of the other activities listed below the flashcards like Matching, Snowman, or Hungry Bug. 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? Would the effect on aggregate demand be larger if the Federal Reserve held the money supply constant in response or if the Fed were committed to maintaining a fixed interest rate? 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. C) buying and selling of government s. In carrying out open market operations, the Federal Reserve usually buys and sells U.S. Treasury securities. For best results enter two or more search terms. For the federal deficit to be lowered, a) the federal gov't must decrease its spending and increase net exports. d, If the Federal Reserve wants to increase output, it increases A. government spending. ceteris paribus, if the fed raises the reserve requirement, then: Posted on . 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. By the end of the year, over $40 billion of wealth had vanished. Lowers the cost of borrowing from the Fed, encouraging banks to make loans to the general public. A, Suppose that the Fed engages in an open-market purchase of $4,000 in securities from Bank A. 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 ______. b) means by which the Fed acts as the government's banker. c) an open market sale. Above equilibrium, this results in excess supply. The Board of Governors has___ members, and they are appointed for ___year terms. B. influence the discount rate. The answer is b. rate of interest decreases. The result is that people a. increase the supply of bonds, thus driving up the interest rate. Increase the demand for money. 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. Here are the answers with discussion for yesterday's quiz. Make sure you say increase or decrease/buy or sell. \text{Percent uncollectible}&\text{8\\\%}&\text{17\\\%}&\text{31\\\%}\\ D. The money multiplier decreases. The information provided should help you work out why you missed a question or three! 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. Which of the following is likely to occur if people reduce their spending because they are worried about an economic downturn, ceteris paribus? 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) How will M1 be affected initially? Ceteris paribus, if the Fed raises the reserve requirement, then: The money multiplier increases. \end{array} \end{array} c. commercial bank reserves will be unaffected. Money is functioning as a standard of value if you: Compare the prices of running shoes online to those in a sporting goods store. Working Paper No. c. They wil, 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. 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 The Board of Governors has ___ members,and they are appointed for ___ year terms. a. 2. The lending capacity of the banking system decreases. \end{array} If the Federal Reserve wants to decrease the money supply, it should: a. d. sells U.S. Treasury bills to the federal government. 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. Hence C is the correct option. Conduct open market purchases. The money supply decreases. If the required reserve ratio is 10 percent, what is the resulting change in checkable deposits (or the money supply) if we assume no cash leakages and banks hold zero excess res. 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. Terms of Service. The central bank uses various monetary tools such as open market operations, the Fed's fund rate, and reserve requirements to achieve its goals. Q02 . The sale of bonds to the Fed by the public C. Increases in banks' excess reserves D. Increases in. 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)? Buy Treasury bonds, bills, or notes on the bond market. 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? The Federal Reserve carries out open-market operations, purchasing $1 million worth of bonds from banks. 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. 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. The Fed lowers the federal funds rate. If the Fed wants to raise short-term interest rates, it should a. act to increase the money supply. View Answer. 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. the money supply is likely to increase. c) decreases government spending and/or raises taxes. D. interest rates will increase. Ceteris paribus, if the Fed raises the reserve requirement, then: The lending capacity of the banking system decreases. copyright 2003-2023 Homework.Study.com. The Federal Reserve conducts open market operations when it wants to [{Blank}]? Increase / Decrease b. b. rate of interest decreases. You'll get a detailed solution from a subject matter expert that helps you learn core concepts. 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. then the Fed. If Bank A and all the other banks use reserves to purchase only securities, what will happen to deposits in the banking system and how much does it expand? Decrease the demand for money. How can you tell? Suppose the Federal Reserve buys government securities from commercial banks. Which of the following is NOT a possible source of last-minute reserves for a private bank? An increase in the money supply, When the Federal Reserve increases the discount rate as a part of a contractionary monetary policy, there is: a) a decrease in the money supply and a decrease in the interest rate. b. What is Wave Waters debt ratio on this date? Explain the statement. The required reserve. 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. c. Fed sells bonds. \text{Accounts receivable amount}&\text{\$\hspace{1pt}263,000}&\text{\$\hspace{1pt}134,200}&\text{\$\hspace{1pt}64,200}\\ Answer: D. 15. d) setting interest r, Suppose the Federal Reserve sells $30 million worth of securities to a bank. The result is that people _____. c) Increasing the money supply. B. buy bonds lowering the price of bonds and driving up the interest rates. Annual gross pay of $18,200. Calculate after-tax operating income earned by United States and French divisions from transferring 200,000 chainsaws (a) at full manufacturing cost per unit and (b) a market price of comparable imports. c. reduce the reserve requirement. 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 ______. 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 Keynes viewed the economy as inherently unstable and suggested that during a recession policy makers should: Cut taxes and/or increase government spending. The change is negative it means that excess reserve falls by -100000000 or 100 million. According to macroeconomists, a goal for the economy is a: When the unemployment rate falls to the full-employment level: There is increased concern about inflation. Sell government securities 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 the incentive to borrow funds increases Over the 30-year life of the. D. decrease, Assume that the Federal Reserve establishes a minimum reserve requirement of 12.5%. If the Fed is using open-market operations, will it, Key Concept: Open market operations When the Fed buys government securities, it a. 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. decisions by the Fed to increase or decrease the money multiplier. Conduct open market sales of government bonds. Examples of money are: A. a check. 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? B. there is an excess demand for bonds, so those looking to borrow by selling bonds can do so at a lower interest rate. Q01 . 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. If you forget it there is no way for StudyStack 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. Ceteris paribus, if the Fed raised the required reserve ratio: Question: Ceteris paribus, if the Fed raised the required reserve ratio: This problem has been solved! D. Decrease the supply of money. The buying and selling of government bonds by the Fed to control bank reserves and the money supply are operations known as a. A. eachus, which of the following will occur if the Fed buys bonds through open-market operations? Could the Federal Reserve continue to carry out open market operations? Suppose commercial banks use excess reserves to buy government bonds from the public. }\\ A lower amount of money in the economy makes it more expensive to borrow for banks and consumers.. It forces them to modify their procedures. 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. D. Describe the categories change effect on net income and accounts receivable. 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. The velocity of money is a. the rate at which the Fed puts money into the economy. }\\ \begin{array}{lcc} Transcribed Image Text: Question Now we introduce banks that will act as liquidity providers in the economy. 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. 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. 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. Now suppose the Fed conducts an open market purchase of government bonds equal to $1, Fiscal policy is conducted by: a. b) decreases the money supply and raises interest rates. c. has an expansionary effect on the money supply. \text{Cost of Goods Sold}&\underline{\text{\hspace{19pt}85,250}}&\underline{\text{\hspace{19pt}85,250}}\\ D. open bonds operations. Suppose that the sellers of government securities redeem these checks drawn on the New York Fed for currency. a. decrease, downward b. decrease, upward c. increase, downw, When the Federal Reserve engages in a restrictive monetary policy, the price of marketable government bonds will ___, assuming all other factors influencing the bond market remain the same. b. prices to increase by 3%. C. decreases, 1. b. Suppose the banks in the Federal Reserve System have $100 million in transactions accounts and the reserve requirement is 0.10. Ceteris paribus, based on the aggregate supply curve, if the price level _______ the quantity of real output _______ increases. Name the three tools of monetary policy that the Federal Reserve System can do to combat unemployment/recession. The Federal Reserve (the Fed), the central bank of the United States, has a Congressional mandate to promote maximum employment and price stability. Is it mandatory for banks to buy gov't bonds during open-market operations by the Central Bank? a. decrease, downward. Learn more about the Federal Reserve's control methods and examine contractionary and expansionary monetary policies. When the Fed raises the reserve requirement, it's executing contractionary policy. A perfectly competitive firm currently sells 30,000 cartons of eggs at $1.25 each. When the Federal Reserve sells bonds as a part of a contractionary monetary policy, there is: A. C.banks' reserves will be reduced. B. \end{array} Your email address is only used to allow you to reset your password. c. first purchase, then sell, government securities. Suppose the Fed conducts $10 million open market purchase from Bank A. Suppose the Federal Reserve decided to sell $35 billion worth of government securities in the open market. The Great Depression was caused by a steep decline in the money supply when the stock market crashed in 1929. 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. c. the Federal Reserve System. Suppose a bank has $50,000 in transactions accounts and a minimum reserve requirement of 10 percent. . &\textbf{0-60 days}&\textbf{61-120 days}&\textbf{Over 120 days}\\ }\\ Decrease by $100, Suppose the Federal Reserve buys 3 treasury bonds from the public. When the Federal Reserve increases the discount-rate increases the discount rate as a part of a contractionary monetary policy, there is: A.
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