C. increase by $290 million. Which of the following lends reserves to private banks? $$ raise the discount rate. Could the Federal Reserve continue to carry out open market operations? &\textbf{Original Categories}&\textbf{Categories Change}\\[5pt] Consider an expansionary open market operation. Note The higher the reserve requirement, the less profit a bank makes with its money. If the Fed sells $29 million worth of government securities in an open market operation, then the money supply can: A. increase by $2.9 million. Federal Reserve purchases of government bonds ______________ total reserves and _________________ the money supply. B. decreases the money supply, which leads to increased interest rates and a rise in investment spending. Instead of paying her for this service,the neighbor washes the professor's car. The Federal Reserve cut interest rates on March 3, 2020, in response to COVID-19. Make sure you say increase or decrease/buy or sell. When the Fed conducts open market operations, the Fed buys and sells government securities to: a. the private sector. b) increase. 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 perfectly competitive firm currently sells 30,000 cartons of eggs at $1.25 each. Currency circulation in the economy will increase since the non-bank public will have sold their securities. In addition, the company had six partially completed units in its factory at year-end. Ceteris paribus, if the Fed raises the reserve requirement, then: The money multiplier increases. If the population of a country is 1,000,000 people, its labor force consists of 600,000, and 60,000 people are unemployed, the unemployment rate is: If the population of a country is 220 million people, its labor force consists of 115 million, and 99 million people are employed, the unemployment rate is: When construction workers seek work because the ground is covered in snow and ice, the unemployment rate goes up. 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. \text{Variable manufacturing cost per chainsaw} & \text{\$100}\\ . This situation is an example of: After quitting one job, some people with marketable skills find that it takes several months to find a new job. 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. increase the supply of bonds, decrease bond prices, and increase interest rates. Also assume that banks do not hold excess reserves and there is no cash held by the public. Now suppose the. 23. The result is that people _____. The text describes the theoretical developments of the assignment rules regarding fiscal and monetary policies and the respective roles in macroeconomics stabilisation. Tax on amount over $3,000 :3 percent. Suppose the Federal Reserve undertakes an open market purchase of government bonds. \text{General and administrative expenses} \ldots & 500,000 \\ 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. C. The nominal interest rate does not change. If not, how will the Central Bank control inflation? All rights reserved. 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. \begin{array}{l r} 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. View Answer. 26. 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 ______. Assuming this, how is the Fed likely to respond to fiscal stimulus if the economy is nearing full employment? Biagio Bossone. a. decrease, downward. Compute the following for the current year: 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. \text{Direct materials used} \ldots & \$ 750,000\\ It improves aggregate demand, thus increasing the country's GDP. The U.S. Treasury c. The U.S. Mint d. The federal government And involves: a. Quantitative easing b. A) Increase money supply to decrease interest rates, increase i. Expansionary monetary policy: a) decreases government spending and/or raises taxes. Money is functioning as a standard of value if you: Compare the prices of running shoes online to those in a sporting goods store. If market interest rates rise, the selling price of existing bonds in the market will, ceteris paribus, . Generally, when the Federal Reserve lowers interest rates, investment spending [{Blank}] and GDP [{Blank}]. D. In open market operations, the Fed exchanges cash (money) for non-cash (bonds). C. The value of the dollar will decrease in foreign exchange markets. The Federal Reserve (or Fed) often executes its policy by selling or buying U.S. government securities in the open market, which in turn influences the quantity of real money balances. 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) borrow reserves from the public. b. B. federal bond operations. Interest rates b. The price level to decrease c. Unemployment to decrease d. Investment to decrease. Buy Treasury bonds, bills, or notes on the bond market. b. the interest rate rises and this stimulates consumption spending. U.S.incometaxrateontheU.S.divisionsoperatingincome40%FrenchincometaxrateontheFrenchdivisionsoperatingincome45%Frenchimportduty20%Variablemanufacturingcostperchainsaw$100Fullmanufacturingcostperchainsaw$175Sellingprice(netofmarketinganddistributioncosts)inFrance$300\begin{matrix} A. change the liquidity levels of banks. B. If a bank does not have enough reserves, it can. 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. 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. If the Fed sells government bonds, this will: A. The shape of the curve determines the impact of an aggregate demand shift on prices and output. The Federal Reserve expands the money supply by 5 percent. Increase / Decrease b. Assume that the Fed increases the monetary base by $1 billion when the reserve requirement is 1/7. c. When the Fed decreases the interest rate it p, Which of the following options is correct? \text{Accounts receivable amount}&\text{\$\hspace{1pt}263,000}&\text{\$\hspace{1pt}134,200}&\text{\$\hspace{1pt}64,200}\\ C. influence the federal funds rate. are in the same box the next time you log in. c. the government increases spending and lowers taxes. International Financial Advisor. The difference between price and average total cost multiplied by the quantity sold. c. commercial bank reserves will be unaffected. a) 0.25 b) 0, Suppose the reserve requirement for checking deposits is 10 percent and banks do not hold any excess reserves. If the Fed raises the reserve requirement, the money supply _____. The required reserve ratio is 16%. Any import duty paid to the French authorities is a deductible expense for calculating French income taxes. If the Federal Reserve increases the nominal supply of money, all else equal: a. the demand for money increases. When the Federal Reserve increases the discount-rate increases the discount rate as a part of a contractionary monetary policy, there is: A. B. fewer reserves and inc, Suppose you read in the paper that the Fed plans to reduce money supply. Bank A with total deposits of $100 million isfully loaned up. Suppose the Federal Reserve engages in open-market operations. 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. Personal exemptions of$1,500. If the Federal Reserve wants to decrease the money supply, it should: a. 1. If the price of computers falls during a period when the average price level remains constant, which of the following has occurred? decreases, rises, If the Federal Reserve reduces interest rates, it wants: a. Banks now have more money to loan since they are required to hold less in reserve. is the rate of interest charged by the Fed when it lends money to private banks, If a private bank lends money to another bank, the interest rate that is charged for the loan is the, Suppose the Fed decreases interest rates by half of a percent. 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 b. means by which the Fed supplies the economy with currency. If there is a recession, the Fed would most likely a. encourage banks to provide loans by. b. 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. C. decisions by the Fed to raise or lower interest rates. Fill in either rise/fall or increase/decrease. Holding the deposits or reserves of commercial banks. 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 %. Suppose the Federal Reserve buys government securities from commercial banks. That reduces liquidity and slows economic activity. 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? Required reserves decrease. 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. Which of the following is likely to occur if people reduce their spending because they are worried about an economic downturn, ceteris paribus? Suppose the Federal Reserve conducts an open market purchase of $150 million government securities from the non-bank public. c. prices to increase by 2%. C) buying and selling of government s. In carrying out open market operations, the Federal Reserve usually buys and sells U.S. Treasury securities. They will remain unchanged. Suppose the bond market and the money market both start out in equilibrium and then the Federal Reserve increases the money supply. b) an open market sale and expansionary monetary policy. The reserve ratio is 20%. 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? Money is functioning as a store of value if you: Put it in a savings account so you can buy a new car next summer. 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. 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? A decrease in the reserve ratio will: a. &\textbf{past due}&\textbf{past due}&\textbf{past due}\\[5pt] b. the Federal Reserve buys bonds on the open market. Ceteris paribus, what will occur if the Fed buys bonds through open-market operations? 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. You'll get a detailed solution from a subject matter expert that helps you learn core concepts. a. decrease; decrease; decrease b. \begin{array}{lcc} Its policymakers are welcoming the recent slowdown in price increases, and the disinflation trend gives . It sells $20 billion in U.S. securities. See our A lower amount of money in the economy makes it more expensive to borrow for banks and consumers.. Ceteris paribus, if the Fed raises the reserve requirement, then: The lending capacity of the banking system decreases. To see how well you know the information, try the Quiz or Test activity. When the Federal Reserve System buys government securities on the open market: A. the money supply will decrease. c. buys or sells existing U.S. Treasury bills. If $200,000 is deposited in the bank, then ceteris paribus: Excess reserves will increase by $170,000. The Fed decides that it wants to expand the money supply by $40 million. \textbf{ELEGANT LINENS}\\ a. 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. Suppose the Federal Reserve purchases mortgage-backed securities (MBS). b. it will be easier to obtain loans at commercial banks. b. Otherwise, click the red Don't know box. If the Fed uses open-market operations, should it buy or sell government securities? If the Federal Reserve increases the discount rate: a. the federal funds rate must decrease. Total deposits decrease. B. decrease the discount rate. 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. b. Raise discount rate 2. 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) Increasing the money supply. Change in Excess Reserve = -100000000. B. there is an excess demand for bonds, so those looking to borrow by selling bonds can do so at a lower interest rate. While those goals were articulated in 1977, 2 the approach and tools used to implement those objectives have changed over time. If you knew the answer, click the green Know box. In order to increase sales by one item per month, the monopolist must lower the price of its software by $1 to $49. 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. Then click the card to flip it. B) Total reserves increase D) The money multiplier decreases. The Federal Reserve carries out open-market operations, purchasing $1 million worth of bonds from banks. When the Federal Reserve makes an open market purchase, the Fed: buys securities from banks and the public, which will decrease tha. 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. an exchange between a private bank and the Federal Reserve where the Fed buys or sells government bonds to private banks. When the Fed buys government bonds, the reserve of the banking system: a) increases, so the money supply increases. 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. If they have it, does that mean it exists already ? c) increases government spending and/or cuts taxes. The Fed funds market is the market where banks a) buy and sell bonds to the Federal Reserve. You would need to create a new account. Then, ceteris paribus, bank reserves , currency in circulation and thus the monetary base will decreases etary base by increasing bank reserves only. d. the U.S. Treasury. Determine the December 31, 2012, balances in Wave Waters shareholders equity accounts and total shareholders equity on this date. 41. a. If the Fed sells $1 million of government bonds, what is the effect on the economy s reserves and money supply? d. the demand for money. A Burton marketing division in Lille, France, imports 200,000 chainsaws annually from the United States. B. The use of money and credit controls to change macroeconomic activity is known as: Free . State tax on first $3,000: 1.5$ percent. This causes excess reserves to, the money supply to, and the money multiplier to. If a market basket of goods cost $100 in the base year and $110 in a later year, then average prices have increased by: Keynes and classical economists disagree about whether: Government intervention should be used to correct business cycles. The Fed is most likely to do this by: A. purchasing government bonds from the public B. selling government bonds to the public C. selling government bonds to the treasury D. purchasi, Which of the following tends to reduce the effect of the expansionary open market operation on the money supply? Is this part of expansionary or contractionary fiscal or monetary policy? Open market operations When the Fed sells government securities, it: a. lowers the cost of borrowing from the Fed, encouraging banks to make loans to the general public. \end{array} The aggregate demand curve is downward sloping because, ceteris paribus: People are willing and able to buy more goods and services at lower average prices. The aggregate supply curve is positively sloped because as the price level increases: Profit margins increase in the short run. c. the money supply and the price level would increase. c. Fed sells bonds. An easing of monetary policy interest rates, which the demand for a currency and the fundamental value of the exchange rate. 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? [Solved] Ceteris paribus,if the Fed raises the reserve requirement,then: A) The money multiplier increases. Interest Rates / Real GDP a. B. a dollar bill. Increase the reserve requirement. D. change the level of reserves it holds for banks. If the Fed wants to increase the money supply through an open market operation, it will a. purchase government securities. 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? d. the price level decreases. 1) Ceteris paribus, if bond prices rise, then A) the Federal reserve must be pursuing contractionary monetary policy. c) not change. 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. The money multiplier is equal to ______ and the reserve ratio is equal to _____%. Which of the following could cause a recession? The Fed sells Treasury bills in the open market b. a. Then the bank has excess reserves of: Suppose a bank has $1,000,000 in deposits, a minimum reserve requirement of 15 percent, and bank reserves of $170,000. B. purchases government bonds to decrease the money supply. &\textbf{0-30 days}&\textbf{31-90 days}&\textbf{Over 90 days}\\ Using the oversimplified money multiplier, the money suppl, Assume the reserve requirement is 10%. Free . D. The collectio. a. B. buy bonds lowering the price of bonds and driving up the interest rates. The creation of a Federal Reserve System was recommended by. C. Increase the supply of money. What fiscal policy tools are used to shift the aggregate demand curve? }\\ C. where a bank borrows reserves or bo, Open market operations are a) buying and selling of Federal Reserve Notes in the open market. An expansionary fiscal policy is when a. the government lowers spending and raises taxes. 3. It creates money, it creates a transactions-account balance for the borrower, and the money supply increases. Increase government spending. If the economy is currently in monetary equilibrium, an increase in the money supply will a.