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Wave Waters total liabilities on December 31, 2012, are $7,800. Is it mandatory for banks to buy gov't bonds during open-market operations by the Central Bank? 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 is functioning as a standard of value if you: Compare the prices of running shoes online to those in a sporting goods store. Explain the statement. 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. Increase the reserve requirement. Suppose Alan receives a check for $300 from a bank in Dallas, He deposits the check in his account at his Baltimore ban of the following is Alan's Baltimore bank likely to collect the $300 from? Road Warrior Corporation began operations early in the current year, building luxury motor homes. c) overseeing the buying and selling of government securities in the open market. A) increases; supply. D) Required reserves decrease. \text{French income tax rate on the French division's operating income} & \text{45\\\%}\\ 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. B) bond yields will fall C) bond yields will increase as well. A combination of flexible rules and limited discretion. You would need to create a new account. &\textbf{Original Categories}&\textbf{Categories Change}\\[5pt] b. the Open Market Desk at the Federal Reserve Board in Washington, D.C. c. the National Bureau of Economic, Suppose the Fed buys $10 billion of securities from the public and the public deposits the payment they receive from the Fed in their checking accounts at their commercial banks. Tax on amount over $3,000 :3 percent. \begin{array}{lcc} B. The result is that people _____. D. all of the above. 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. \text{General and Administrative Expense}&\text{\hspace{12pt}425,000}&\text{\hspace{12pt}425,000}\\ C. The lending capacity of the banking system increases. If the Fed conducts an open-market sale, bank reserves _ and the money supply is likely to _. Change in Excess Reserve = -100000000. Now suppose the Fed lowers. $$ c. the interest rate rises and this. The buying and selling of government bonds by the Fed to control bank reserves and the money supply are operations known as a. The key decision maker for general Federal Reserve policy is the: Free . It is considered to be less efficient for an economy than the use of money. What are some basic monetary policy tools used by the Fed? $$ If the Fed raises the reserve requirement, the money supply _____. Suppose the Federal Reserve undertakes an open market purchase of government bonds. U.S.incometaxrateontheU.S.divisionsoperatingincomeFrenchincometaxrateontheFrenchdivisionsoperatingincomeFrenchimportdutyVariablemanufacturingcostperchainsawFullmanufacturingcostperchainsawSellingprice(netofmarketinganddistributioncosts)inFrance40%45%20%$100$175$300. It improves aggregate demand, thus increasing the country's GDP. b) borrow reserves from the public. 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. When the Fed decreases the discount rate, banks will a) borrow more from the Fed and lend more to the public. b. If they have it, does that mean it exists already ? d) borrow reserves from the Federal Reserve. \end{matrix} 16. B. buys treasury securities decreasing i, To stop rampant inflation, the Fed decides to sell $400 billion worth of government bonds and other securities to banks, thus decreasing the banks' reserves. As a result, the money supply will: a. increase by $1 billion. 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. &\textbf{past due}&\textbf{past due}&\textbf{past due}\\[5pt] Cost of finished goods manufactured. If the Fed wants to increase the money supply through an open market operation, it will a. purchase government securities. 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. It transfers money from spenders to savers. c. commercial bank reserves will be unaffected. 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. \end{array} B. increase the supply of bonds, decrease bond prices, and increase interest rates. The U.S. Treasury c. The U.S. Mint d. The federal government And involves: a. Quantitative easing b. a. increases; increases; decreases b. decreases; decreases; decreases c. increases; increases; increases d. increases; decreases; 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. If the Fed decides to engage in an open market operation to increase the money supply, what will it do? copyright 2003-2023 Homework.Study.com. B. purchases government bonds to decrease the money supply. 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. Accordingly, the Board is amending Regulation D to set the low reserve tranche for net transaction accounts for 2022 at $640.6 million, an increase of $457.7 million from 2021. c. the money supply is likely to increase. d. The money supply should increase when _ a. b. increase the supply of bonds, thus driving down the interest rate. 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. Suppose a bank has $50,000 in transactions accounts and a minimum reserve requirement of 10 percent. C) Total deposits decrease. The Federal Reserve (the Fed), the central bank of the United States, has a Congressional mandate to promote maximum employment and price stability. b. To decrease the money supply, the Fed can, raise the reserve requirement, raise the discount rate, or sell bonds. If the Federal Reserve increases the money supply, ceteris paribus, the: a. rate of interest is unaffected. All rights reserved. Suppose the banks in the Federal Reserve System have $400 million in transactions accounts and the reserve requirement is 0.10. Aggregate demand will decrease or shift to the left. A perfectly competitive firm currently sells 30,000 cartons of eggs at $1.25 each. a. mortgages; Bank of America b. government securities; New York Fed c. government securities; Federal Reserve Bank of Florida d. Mortgages; Federal Reserve. 3 . Suppose the Federal Reserve wishes to use monetary policy to close an expansionary gap. You'll get a detailed solution from a subject matter expert that helps you learn core concepts. The reserve requirement, the discount rate, and the sale and purchase of Treasury bonds. Which of the following could cause a recession? B ) bond yields will fall 2) A negative output gap indicates that A) nominal GDP is below real GDP. 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 ____. d. the average number of times per year a dollar is spent. A decrease in the reserve ratio will: a. 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. The Federal Reserve Bank b. The Federal Reserve can decrease the money supply by: A. buying gold reserves on the open market B. buying foreign currency in the exchange market C. buying government bonds on the open market D. selling bonds on the open market E. selling financial capit. 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 the Fed uses open-market operations, should it buy or sell government securities? An expansionary fiscal policy is when a. the government lowers spending and raises taxes. Determine whether each of the following, Open market operations are the a. buying and selling of Federal Reserve Notes in the open market. 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. Makers, but perfectly competitive firms are price takers. A stock person who is laid off by a department store because retail sales across the country have decreased is _______ unemployed. c. increase, down. 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. E.the Phillips curve will shift down. In order to maintain price stability, the Federal Reserve has decided to engage in monetary restraint. Given an inflationary gap, the Federal Reserve will use monetary policy to do what to interest rates and to aggregate demand? What effect will this open market operation have on demand deposits and M1? $$ The text describes the theoretical developments of the assignment rules regarding fiscal and monetary policies and the respective roles in macroeconomics stabilisation. Now suppose the. Toby Vail. Why does an open market sale of Treasury securities by the federal Reser, Suppose the Federal Reserve wanted to increase the money supply: it could a. Then, ceteris paribus, bank reserves _____ (increase, decrease, or do not change), currency in circulation _____ (increases, decreases, or does not change), and thus the monetary base will _____ (decrease or increase). Suppose the Federal Reserve Bank buys Treasury securities. $$ Monetary policy can help the Federal Reserve System to protect, influence, and increase benefits to the economy. 23. b. b. increase the money supply. D. Transaction demand for, To ease monetary policy to fight a recession, the Federal Reserve would ____. then the Fed. All rights reserved. Ceteris paribus, if the Fed reduces the reserve requirement, then: A. Which of the following is NOT a possible source of last-minute reserves for a private bank? 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. Assuming this, how is the Fed likely to respond to fiscal stimulus if the economy is nearing full employment? b. buys bonds from banks, which increases bank reserves. What types of accounts are listed on the post-closing trial balance? The number and relative size of firms in an industry. The Federal Reserve expands the money supply by 5 percent. B. influence the discount rate. \textbf{Comparative Income Statements}\\ - 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. copyright 2003-2023 Homework.Study.com. d. prices to remain constant. c. the government increases spending and lowers taxes. $$ When the Federal Reserve Bank buys US Treasury bonds on the open market, then _______. Price falls to the level of minimum average total cost. 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. The Fed's decision amounted to a shift to a more cautious period of inflation fighting. B. 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. Assume the required reserve ratio is 10 percent and the FOMC orders an open market sale of $50 million in government securities to banks. How does it affect the money supply? 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? 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. Then, ceteris paribus, bank reserves , currency in circulation and thus the monetary base will decreases etary base by increasing bank reserves only. c. first purchase, then sell, government securities. d. the money supply is not likely to change. \text{Total per category}&\text{?}&\text{?}&\text{? Now suppose the Fed conducts an open market purchase of government bonds equal to $1, Fiscal policy is conducted by: a. \text{U.S. income tax rate on the U.S. division's operating income} & \text{40\\\%}\\ c) not change. C. increase by $50 million. raise the discount rate. Fill in either rise/fall or increase/decrease. Suppose the bond market and the money market both start out in equilibrium and then the Federal Reserve increases the money supply. 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. 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. If the Fed sells $5 million worth of government securities to the public, what will be the change in the money supply? III. An open market operation decreases the money supply when the Federal Reserve a. sells bonds to banks, which increases bank reserves. B. expansionary monetary policy by selling Treasury securities. The Fed sells Treasury bills in the open market b. An increase in the reserve ratio: a. increases the money multiplier. When the Federal Reserve increases the discount-rate increases the discount rate as a part of a contractionary monetary policy, there is: A. **Instructions** See Answer View Answer. If the Open-Market Committee of the Federal Reserve sells securities, this action tends to: a. decrease the money supply. U.S. goods are less expensive for Americans so they buy fewer imports and more domestic goods. Which of the following is consistent with what Keynes believed? 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. Ceteris paribus, if the reserve requirement is decreased to 0.07, then excess reserves will increase by: $3 million. The fixed monthly cost is $21,000, and the variable cost. Expansionary fiscal policy is when a. the government lowers spending and raises taxes. The Federal Reserve cut interest rates on March 3, 2020, in response to COVID-19. 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. b. A sale of treasury bills by the federal reserve _____ interest rates and _____ the money supply. Sell Treasury bonds, bills, or notes on the bond market. Suppose that the Fed purchases from bank B some bonds in the open market and that, before the sale of bonds, bank B had no excess reserves. b) borrow more from the Fed and lend less to the public. lower reserve requirements.I and III onlyCurrently the Fed sets monetary policy by targetingthe Fed funds rate From October 1983 . 1015. Professor Williams tutors her next-door neighbor's son in economics. c. has an expansionary effect on the money supply. d. velocity increases. During the year, the company started and completed 45 motor homes at a cost of $\$ 55,000$ per unit. C. Increase the supply of money. c. state and local government agencies only. 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)? Officials indicated an aggressive path ahead, with rate rises coming at each of the . In the money market, an excess demand of money will: A. increase the supply of bonds, increase bond prices, and decrease interest rates. C. Controlling the supply of money. Which of the following is likely to cause a leftward shift in the aggregate supply curve, ceteris paribus? are the minimum amount of reserves a bank is required to hold. The money supply increases. Your email address is only used to allow you to reset your password. b. the interest rate increases c. the Federal Reserve purchases bonds. B. the Fed is concerned about high unemployment rates. Suppose the U.S. government paid off all its debt. b) means by which the Fed acts as the government's banker. 2) If, If the Fed increases the supply of money in the market, bond prices will and interest rates will. If you've accidentally put the card in the wrong box, just click on the card to take it out of the box. 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. When the Federal Reserve System buys government securities on the open market: A. the money supply will decrease. If the Fed buys more bonds from the public, then the money supply will: Increase and the aggregate demand curve will shift to the right. D. All of the above. On March 5 and 6, I surveyed over 500 consumers about their concerns about COVID-19, awareness of the Fed's . 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. b. will cause banks to make more loans. 1. d. a decrease in the quantity de. }\\ Price charged is always less than marginal revenue. It sells $20 billion in U.S. securities. 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 %. Keynes viewed the economy as inherently unstable and suggested that during a recession policy makers should: Cut taxes and/or increase government spending. Interest Rates / Real GDP a. If price is greater than marginal cost, a competitive firm should increase output because additional units of output will: Add to the firm's profits (or reduce losses). Buying securities in open market operations is a tool used by the Federal Reserve to increase the money supply in the economy, thus encouraging economic growth. Multiple Choice . a. c) decreases, so the money supply increases. b. a decrease in the demand for money. Learn more about the Federal Reserve's control methods and examine contractionary and expansionary monetary policies.