d. rate of interest increases.. Holding the deposits or reserves of commercial banks. b) Lowering the nominal interest rate. Suppose the economy is initially experiencing an inflationary gap. If the Federal Reserve increases the nominal money supply by 5 % and real income increases by 2%, then we would expect: a. prices to increase by 5%. D. all of the above. 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. C) buying and selling of government s. In carrying out open market operations, the Federal Reserve usually buys and sells U.S. Treasury securities. c. the money supply and the price level would increase. b. the same thing as the long-term growth rate of the money supply. \end{array} Generally, when the Federal Reserve lowers interest rates, investment spending [{Blank}] and GDP [{Blank}]. e. increase inflation. \text{Direct labor} \ldots & 800,000\\ c. increase, down. a) increases; decreases, b) decreases; increases, c) decreases; decreases, d) increases; increases. B. Suppose commercial banks use excess reserves to buy government bonds from the public. \text{Full manufacturing cost per chainsaw} & \text{\$175}\\ }\\ C. Controlling the supply of money. \text{Cost of Goods Sold}&\underline{\text{\hspace{19pt}85,250}}&\underline{\text{\hspace{19pt}85,250}}\\ The equilibrium price level and equilibrium output should both increase. What impact would this action have on the economy? When the Fed decreases the discount rate, banks will a) borrow more from the Fed and lend more to the public. What can be used to shift aggregate demand? a. decreases; falls b. decreases; rises c. does not change; falls d. increases; rises e. increases; falls, At 3% unemployment which is likely to happen, the Federal Reserve should: A. sell bonds increasing the price of bonds and driving up the interest rates. 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. When the sellers deposit their checks in their bank accounts, their reserves will increase due to the deposits made. (Income taxes are not included in the computation of the cost-based transfer prices.) Interest Rates / Real GDP a. b. the Federal Reserve buys bonds on the open market. d. commercial bank, Assume all money is held in the form of currency. \begin{array}{c} 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. The velocity of money is a. the rate at which the Fed puts money into the economy. b. buys or sells foreign currency. \text{General and Administrative Expense}&\text{\hspace{12pt}425,000}&\text{\hspace{12pt}425,000}\\ 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. 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. b. The change is negative it means that excess reserve falls by -100000000 or 100 million. Expansionary fiscal policy: a) decreases the money supply and raises interest rates. Any import duty paid to the French authorities is a deductible expense for calculating French income taxes. Open market operations. Now suppose the. Also assume the Federal Reserve conducts an Open Market Operations purchase of U.S. Treasury securities in the amoun, Assume that the reserve requirement is 20 percent, banks do not hold excess reserves, and there is no cash held by the public. c) Increasing the money supply. The financial sector has grown relative to the real economy and become more fragile. d. The money supply should increase when _ a. c. an increase in the demand for bonds and a rise in bond prices. d. the money supply and the pric, When the Fed increases the quantity of money, the: a. equilibrium interest rate falls b. demand for money curve shifts right c. supply of money curve shifts leftward. \end{matrix} C. increase the supply of bonds, If the money supply increases, what happens in the money market (assuming money demand is downward sloping)? Patricia's nominal annual income in 2009 was $60,000. The Baltimore banks regional federal reserve bank. The price level to decrease c. Unemployment to decrease d. Investment to decrease. One HEADLINE article in the text has the title "Fed cuts key interest rate half-point to 1 percent." At what price per share did Wave Water issue common stock during 2012? a. decrease, downward. The money supply increases. 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. See Answer If the federal reserve increases the discount rate, the money supply will: a) decrease. Is this an example of fiscal policy or monetary policy? Total costs for the year (summarized alphabetically) were as follows: c) an open market sale. 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. The required reserve ratio is 16%. E. discount rate operations. 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. C. treasury bond operations. 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 ______. \text{Accounts receivable amount}&\text{\$\hspace{1pt}263,000}&\text{\$\hspace{1pt}134,200}&\text{\$\hspace{1pt}64,200}\\ Road Warrior Corporation began operations early in the current year, building luxury motor homes. Answer the question based on the following balance sheet for the First National Bank. Why does an open market purchase of Treasury securities by the Federal Reserve increase bank reserves? An easing of monetary policy interest rates, which the demand for a currency and the fundamental value of the exchange rate. If you forget it there is no way for StudyStack The number and relative size of firms in an industry. 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. Q01 . When you need a break, try one of the other activities listed below the flashcards like Matching, Snowman, or Hungry Bug. Suppose the banks in the Federal Reserve System have $100 million in transactions accounts and the reserve requirement is 0.10. A decrease in the reserve ratio will: a. B) bond yields will fall C) bond yields will increase as well. 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. By the end of the year, over $40 billion of wealth had vanished. Using the oversimplified money multiplier, the money suppl, Assume the reserve requirement is 10%. &\textbf{past due}&\textbf{past due}&\textbf{past due}\\[5pt] 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? 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. b-A rise in corporate tax would shift the investment line outwards. Michael Haines c. buy bonds, thus driving up the interest rate. 1015. Multiple Choice . If a bank does not have enough reserves, it can. What cannot be used to shift aggregate demand? Multiple Choice . Suppose the banks in the Federal Reserve System have $400 million in transactions accounts and the reserve requirement is 0.10. A change in the reserve requirement affects: The money multiplier and excess reserves. Previous question Next question All rights reserved. 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. d. Conduct open market sales. 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. 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. d. the demand for money. Cause the money supply to increase, c. Not affect the money supply, d. Decrease the money multiplier. B. purchases government bonds to decrease the money supply. The Federal Reserve's monetary policy is one of the ways in which the U.S. government tries to regulate the nation's economy by controlling the money supply. 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. B. federal bond operations. D. All of the above. a. increases; rises b. does not change; falls c. decreases; rises d. decreases; falls e. increases; falls. Decrease in the federal funds rate B. B. 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. 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. 1. To see how well you know the information, try the Quiz or Test activity. copyright 2003-2023 Homework.Study.com. It is considered to be less efficient for an economy than the use of money. b. the money supply is likely to decrease. What is Wave Waters debt ratio on this date? It transfers money from spenders to savers. Some terms may not be used. If the Fed sells government bonds, this will: A. The result is that people a. increase the supply of bonds, thus driving up the interest rate. The money multiplier is equal to ______ and the reserve ratio is equal to _____%. Get access to this video and our entire Q&A library, How the Federal Reserve Changes the Money Supply and Affects Interest Rates. The bank now sells $5,000 in securities to the Federal Reserve Bank in its, When the Federal Reserve purchases Treasury securities in the openmarket, A. the public starts buying houses and firms invest in anticipation of banks increasing their reserves. a. increase the supply of bonds, thus driving up the interest rate. Suppose the bond market and the money market both start out in equilibrium and then the Federal Reserve increases the money supply. You would need to create a new account. 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. E.the Phillips curve will shift down. The following is the past-due category information for outstanding receivable debt for 2019. 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 Great Depression was caused by a steep decline in the money supply when the stock market crashed in 1929. Change in Excess Reserve = -100000000. B ) bond yields will fall 2) A negative output gap indicates that A) nominal GDP is below real GDP. Personal exemptions of$1,500. d. velocity increases. See Answer Ceteris paribus, if the Fed raised the required reserve ratio: Expert Answer 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. Increase; appreciate b. Suppose the Federal Reserve engages in open-market operations. Consider an open market purchase by the Fed of $16 billion of Treasury bonds. b. the Federal Reserve buys bonds on the open market. Total deposits decrease. b. a decrease in the demand for money. The current account deficit will increase. c. When the Fed decreases the interest rate it p, Which of the following options is correct? B. influence the discount rate. We develop a model of price formation in a dealership market where monitoring of the information flow requires costly effort. $$ Excess reserves increase. 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. The Fed's decision amounted to a shift to a more cautious period of inflation fighting. c) buying and selling of government securities by the Treasury. Which of the following is NOT a basic monetary policy tool used by the Fed? If the Fed purchases $10 million in government securities, then wh. 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. Decrease the discount rate. (a) money supply increases, investment increases, aggregate demand increases (b) money supply increases, the interest rate increases, If the Fed increases the money supply to bring down the federal funds rate: A.
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