$$ A. 26. The paper argues that the process of financialization has profoundly changed how capitalist economies operate. 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. c. Offer rat, 1. An increase in the money supply: A. lowers the interest rate, causing a decrease in investment and an increase in GDP B. lowers the interest rate, causing an increase in investment and a decrease in GDP C. lowers the interest rate, causing an increase in, If there is a negative 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. c. has an expansionary effect on the money supply. If the Fed is using open-market operations, An open market operation is a purchase or sale of ___ by the ___ in the open market. D. The value o, If the nominal interest rate were to increase, then: a. money demand decreases and the price level increases. Suppose a bank has $50,000 in transactions accounts and a minimum reserve requirement of 10 percent. The money supply increases. c. the government increases spending and lowers taxes. e. raise the reserve requirement. 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 ______. \textbf{ELEGANT LINENS}\\ c. the money supply divided by nominal GDP. Which of the following functions does the Fed perform? 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. \textbf{Year Ended December 31, 2019}\\ What cannot be used to shift aggregate demand? (a) increases because the resulting increase in the interest rate leads to a decrease in investment (b) increases because the resulting decrease in the interest rate leads to an increase in investment (, The Fed decreases the quantity of money. If a bank does not have enough reserves, it can. 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. Your email address is only used to allow you to reset your password. Should the Fed increase or decrease the money supply? We start by assuming that there is no reserve requirement or lending by the Central Bank. The aggregate demand curve should shift rightward. Cause the money supply to decrease, b. 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. B. 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 ____. B. federal bond operations. b. buys bonds from banks, which increases bank reserves. a. &\textbf{Original Categories}&\textbf{Categories Change}\\[5pt] d) borrow reserves from the Federal Reserve. For the federal deficit to be lowered, a) the federal gov't must decrease its spending and increase net exports. Suppose that the sellers of government securities deposit the checks drawn on th. $$ c. buy bonds, thus driving up the interest rate. b) borrow more from the Fed and lend less to the public. C. increase by $290 million. b. the interest rate rises and this stimulates consumption spending. a. \end{array} c. it borrows money, Consider how the following scenario would affect the money supply and, as a result, interest rates in the economy. What types of accounts are listed on the post-closing trial balance? The sale of bonds to the Fed by the public C. Increases in banks' excess reserves D. Increases in. b. sell bonds, thus driving down the interest rate. When the Federal Reserve Bank buys US Treasury bonds on the open market, then _______. 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. C. influence the federal funds rate. 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{Cost of Goods Sold}&\underline{\text{\hspace{19pt}85,250}}&\underline{\text{\hspace{19pt}85,250}}\\ Open-market operations occur when the Federal Reserve: a. buys U.S. Treasury bills from the federal government. Ceteris paribus, if the reserve requirement is decreased to 0.05, then excess reserves will . The Federal Reserve Bank b. Decrease in the federal funds rate B. $140,000 in checkable-deposit liabilities and $46,000 in reserves. 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. Decrease by $100, Suppose the Federal Reserve buys 3 treasury bonds from the public. Some terms may not be used. Sell Treasury bonds, bills, or notes on the bond market. Conduct open market sales of government bonds. Decrease the discount rate. C. The nominal interest rate does not change. Increase / Decrease b. b) Lowering the nominal interest rate. d. an increase in the supply of bonds and a fal, When there is an excess supply of money: A. the Fed will decrease the money supply. 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). Total deposits decrease. \text{General and administrative expenses} \ldots & 500,000 \\ Cost of finished goods manufactured. If $200,000 is deposited in the bank, then ceteris paribus: Excess reserves will increase by $170,000. The Fed approved a 0.25 percentage point rate hike, the first increase since December 2018. All rights reserved. B. decisions by the Fed to increase or decrease the money multiplier. C. The value of the dollar will decrease in foreign exchange markets. D. decrease, Assume that the Federal Reserve establishes a minimum reserve requirement of 12.5%. The Federal Reserve expands the money supply by 5 percent. The monetary base in the economy will increase. b. means by which the Fed supplies the economy with currency. 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. Terms of Service. 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? }\\ Answer: Answer: B. If you knew the answer, click the green Know box. 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? B. influence the discount rate. If the Fed decreases the money supply, GDP ________. 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)? 23. - 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. a. higher, higher b. higher, lower c. lower, higher d. lower, lower, When lots of people put their money into bonds, the demand for money and the interest rate on bonds. $$ $$ 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. 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. Find the taxable wages. D.bond prices will rise, and interest rates will fall. The Federal Reserve cut interest rates on March 3, 2020, in response to COVID-19. D. open bonds operations. Suppose the banks in the Federal Reserve System have $100 million in transactions accounts and the reserve requirement is 0.10. What is the reserve-deposit ratio? copyright 2003-2023 Homework.Study.com. III. 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 ______. Answer: D. 15. b. sell government securities. Suppose the economy is initially experiencing an inflationary gap. b) increases the money supply and lowers interest rates. 1. C) Excess reserves increase. Ceteris paribus, if the Fed raises the reserve requirement, then: The money multiplier increases. If not, how will the Central Bank control inflation? Tax on amount over $3,000 :3 percent. 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. The Dutch East India Company (also known by the abbreviation "VOC" in Dutch) was the first publicly listed company ever to pay regular dividends. C. decrease interest rates. The required reserve ratio is 16%. 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). Explain. b. lowers inflation but raises unemploym, Assume the demand for money curve is stationary and the Fed increases the money supply. Any import duty paid to the French authorities is a deductible expense for calculating French income taxes. Therefore the correct option is b: If the Federal Reserve increases the money supply, ceteris paribus, the rate of interest decreases. d. The Federal Reserve sells bonds on the open market. D. The money multiplier decreases. The Fed sells Treasury bills in the open market b. b. it will be easier to obtain loans at commercial banks. \text{Total Expenses}&\text{\hspace{12pt}?}&\text{\hspace{12pt}? 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. Suppose a market is dominated by three firms. c. increase, down. Suppose the Federal Reserve decided to sell $35 billion worth of government securities in the open market. 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. Previous question Next question Suppose the Federal Reserve conducts an open market purchase of $150 million government securities from the non-bank public. Consider an expansionary open market operation. Expansionary fiscal policy is when a. the government lowers spending and raises taxes. Which of the following lends reserves to private banks? The money supply decreases. Required reserves decrease. Assume a fixed demand for money curve and the Fed decreases the money supply. c) borrow reserves from other banks. d. sells U.S. Treasury bills to the federal government. \end{array} During the year, the company started and completed 45 motor homes at a cost of $\$ 55,000$ per unit. \begin{array}{lcc} When the Federal Reserve increases the discount rate, banks will borrow A. fewer reserves and decrease lending. You can also use your keyboard to move the cards as follows: If you are logged in to your account, this website will remember which cards you know and don't know so that they 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. B. decreases the bond price and decreases the interest rate. Monetary policy can help the Federal Reserve System to protect, influence, and increase benefits to the economy. What can be used to shift aggregate demand? Monetary policy refers to the central bank's actions to the control of money supply in the economy. If the Fed wants to increase the money supply through an open market operation, it will a. purchase government securities. Ceteris paribus, if the Fed reduces the reserve requirement, then: A. 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? 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. 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. What is meant by open market operations? b) an open market sale and expansionary monetary policy. If the Federal Reserve increases the discount rate: a. the federal funds rate must decrease. lower reserve requirements.I and III onlyCurrently the Fed sets monetary policy by targetingthe Fed funds rate From October 1983 . Fill in either rise/fall or increase/decrease. The key decision maker for U.S. monetary policy is: Ceteris paribus, if the Fed raises the reserve requirement, then: e The lending capacity of the banking system decreases. Answer the question based on the following balance sheet for the First National Bank. The required reserve. Cause an excess demand for money and a decrease in the rate of interest. Savings accounts and certificates of deposit are called. \text{French import duty} & \text{20\\\%}\\ In order to increase sales by one item per month, the monopolist must lower the price of its software by $1 to $49. Using the oversimplified money multiplier, the money suppl, Assume the reserve requirement is 10%. If they have it, does that mean it exists already ? Suppose during the same period average prices in the economy rose by 150 percent.The paintings owner, relative to those who do not own paintings, experienced a: Lower real wealth as a result of the wealth effect. Suppose the banks in the Federal Reserve System have $400 million in transactions accounts and the reserve requirement is 0.10. d. the U.S. Treasury. Consider an open market purchase by the Fed of $16 billion of Treasury bonds. 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. The text describes the theoretical developments of the assignment rules regarding fiscal and monetary policies and the respective roles in macroeconomics stabilisation. c. reduce the reserve requirement. Which action would the federal reserve rate take to expand the money supply and lower the equilibrium interest rate? Conduct open market purchases. c. state and local government agencies only. Multiple Choice . The aggregate demand curve should shift rightward. If the Fed sells $5 million worth of government securities to the public, what will be the change in the money supply? It sells $20 billion in U.S. securities. Which of the following indicates the appropriate change in the U.S. economy after government intervention? 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. ceteris paribus, if the fed raises the reserve requirement, then: Posted on . 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. B. an exchange between a private bank and the Federal Reserve where the Fed buys or sells government bonds to private banks. c. When the Fed decreases the interest rate it p; Suppose the Federal Reserve buys government Open market operations versus discount loans Consider an expansionary open market operation. Price falls to the level of minimum average total cost. 1) Ceteris paribus, if bond prices rise, then A) the Federal reserve must be pursuing contractionary monetary policy. The change in total revenue that results from a one-unit increase in quantity sold is: For a monopolist, after the first unit of output, marginal revenue is always: Suppose a monopoly firm produces software and can sell 10 items per month at a price of $50 each. $$ \text{Percent uncollectible}&\text{8\\\%}&\text{17\\\%}&\text{31\\\%}\\ An increase in the money supply and an increase in the int. It involves the direct exchange of one good or service for another. C. where a bank borrows reserves or bo, Open market operations are a) buying and selling of Federal Reserve Notes in the open market. What fiscal policy tools are used to shift the aggregate demand curve? The nominal interest rates falls. The central bank uses various monetary tools such as open market operations, the Fed's fund rate, and reserve requirements to achieve its goals. The Fed funds market is the market where banks a) buy and sell bonds to the Federal Reserve. 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. If the Fed decides to engage in an open market operation to increase the money supply, what will it do? B. decrease by $200 million. \end{array} Transcribed Image Text: Question Now we introduce banks that will act as liquidity providers in the economy. c) decreases, so the money supply increases. b. the same thing as the long-term growth rate of the money supply. You'll get a detailed solution from a subject matter expert that helps you learn core concepts. If the Fed purchases $10 million in government securities, then wh. 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. When the Federal Reserve System buys government securities on the open market: A. the money supply will decrease. Issuanceofstock. Cashdividends. U.S.incometaxrateontheU.S.divisionsoperatingincome, FrenchincometaxrateontheFrenchdivisionsoperatingincome, Sellingprice(netofmarketinganddistributioncosts)inFrance, Alexander Holmes, Barbara Illowsky, Susan Dean, Claudia Bienias Gilbertson, Debra Gentene, Mark W Lehman, Fundamentals of Engineering Economic Analysis, David Besanko, Mark Shanley, Scott Schaefer, Don Herrmann, J. David Spiceland, Wayne Thomas. 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? When you need a break, try one of the other activities listed below the flashcards like Matching, Snowman, or Hungry Bug. In the money market, an excess demand of money will: A. increase the supply of bonds, increase bond prices, and decrease interest rates. . By raising or lowering the _______, the Fed changes the cost of money for banks, which impacts the incentive to borrow reserves. If the Fed uses open-market operations, should it buy or sell government securities? c. real income increases. Assume that banks use all funds except required, 13. Is this an example of fiscal policy or monetary policy? 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. Also assume the Federal Reserve conducts an Open Market Operations purchase of U.S. Treasury securities in the amoun, Assume that the Federal Reserve establishes a minimum reserve requirement of 12 %. Wave Waters total liabilities on December 31, 2012, are $7,800. C. decisions by the Fed to raise or lower interest rates. b. b. increase the money supply. State tax on first $3,000: 1.5$ percent. How does it affect the money supply? \text{Selling expenses} \ldots & 500,000