26. e. increase inflation. d. the price level decreases. If the Fed raises the reserve requirement, the money supply _____. A) increases; increases B) increases; decreases C) decreases; increases D) decreases; decreases, If the Federal Reserve was concerned about the "crowding-out" effect, they could engage in: A. expansionary monetary policy by lowering the discount rate. Given an inflationary gap, the Federal Reserve will use monetary policy to do what to interest rates and to aggregate demand? If market interest rates rise, the selling price of existing bonds in the market will, ceteris paribus, . d) increases government spending and/or cuts taxes. d. a decrease in the quantity de. 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? Fiscal policy should be used to shift the aggregate demand curve. \end{array} }\\ The Federal Open Market Committee is responsible for: a) reducing the Fed's reliance on open market operations. Ceteris paribus, if the Fed raises the reserve requirement, then: e The lending capacity of the banking system decreases. Ceteris paribus, an increase in _______ will cause an increase in ______. If the Fed uses open-market operations, should it buy or sell government securities? The use of money and credit controls to change macroeconomic activity is known as: Monetary policy. Look at the large card and try to recall what is on the other side. CBDC Next-Level: A New Architecture for Financial "Super-Stability" by. b. b. The new reserve requirement exemption amount and low reserve tranche will be effective for all depository institutions beginning January 1, 2022. Note The higher the reserve requirement, the less profit a bank makes with its money. 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. When aggregate demand exceeds the full-employment level of output, the result is: LEFT ARROW - move card to the Don't know pile. E. discount rate operations. Cause a reduction in the dem. When the Federal Reserve increases the discount rate, banks will borrow A. fewer reserves and decrease lending. 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. }\\ Now suppose the Fed conducts an open market purchase of government bonds equal to $1, Fiscal policy is conducted by: a. a. monetary base b. b) running the check-clearing process. When you've placed seven or more cards in the Don't know box, click "retry" to try those cards again. U.S. goods are less expensive for Americans so they buy fewer imports and more domestic goods. Savings accounts and certificates of deposit are called. Suppose government spending increases. How does the Federal Reserve regulate the money supply? (a) Show how t. When the central bank sells government bonds does it do so by applying monetary policies such as expansionary and deflationary policies or do they sell them to specific buyers? \text{Percent uncollectible}&\text{8\\\%}&\text{17\\\%}&\text{31\\\%}\\ C. money supply. Expansionary fiscal policy is when a. the government lowers spending and raises taxes. The money multiplier is equal to ______ and the reserve ratio is equal to _____%. b) an open market sale and expansionary monetary policy. . Ceteris paribus, if the reserve requirement is decreased to 0.07, then excess reserves will increase by: $3 million. Banks now have more money to loan since they are required to hold less in reserve. a. 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. What happens to interest rates? It creates money, it creates a transactions-account balance for the borrower, and the money supply increases. The aggregate demand curve should shift rightward. How will the lending capacity of the banking system be affected if the reserve requirement is 5 percent? You'll get a detailed solution from a subject matter expert that helps you learn core concepts. b. c) borrow reserves from other banks. 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. \text{Net Credit Sales}&\text{\$\hspace{1pt}1,454,500}&\text{\$\hspace{1pt}1,454,500}\\ d. lend more reserves to commercial banks. The equilibrium price level and equilibrium output should both increase. How can you tell? a. An expansionary fiscal policy is when a. the government lowers spending and raises taxes. $$ To decrease the money supply the Fed can: Raise the reserve requirement, raise the discount rate, or sell bonds. Cost of finished goods manufactured. a. increases; rises b. does not change; falls c. decreases; rises d. decreases; falls e. increases; falls. An increase in the reserve ratio: a. increases the money multiplier. The aggregate demand curve should shift rightward. An open market operation decreases the money supply when the Federal Reserve a. sells bonds to banks, which increases bank reserves. Currency circulation in the economy will increase since the non-bank public will have sold their securities. When the economy overheats, the government sometimes cools it down with higher taxes, spending reductions, and less money. Biagio Bossone. 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. 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. Now suppose the Fed lowers. What types of accounts are listed on the post-closing trial balance? Which of the following is likely to occur if OPEC increases the amount of oil it supplies and domestic energy prices fall, ceteris paribus? b. sell government securities. The Board of Governors has ___ members,and they are appointed for ___ year terms. d) means by which the Fed supplies the, Suppose the Fed wishes to use monetary policy to close an expansionary gap. b. foreign countries only. See our The people who sold these bonds keep all their money in checking accounts. \textbf{ELEGANT LINENS}\\ Suppose the economy is initially experiencing an inflationary gap. b. rate of interest decreases. c. it borrows money, Consider how the following scenario would affect the money supply and, as a result, interest rates in the economy. \text{Direct labor} \ldots & 800,000\\ 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. are the minimum amount of reserves a bank is required to hold. c. commercial bank reserves will be unaffected. 16. Open-market operations occur when the Federal Reserve: a. buys U.S. Treasury bills from the federal government. Which of the following functions does the Fed perform? Patricia's nominal annual income in 2009 was $60,000. b) increase. B.bond prices will fall, and interest rates will fall. b) borrow more from the Fed and lend less to the public. Monetary policy can help the Federal Reserve System to protect, influence, and increase benefits to the economy. Find the taxable wages. 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. 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. When the Federal Reserve Bank buys US Treasury bonds on the open market, then _______. 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. B. federal bond operations. Q01 . The required reserve ratio is 16%. The VOC was also the first recorded joint-stock company to get a fixed capital stock. d, If the Federal Reserve wants to increase output, it increases A. government spending. &\textbf{past due}&\textbf{past due}&\textbf{past due}\\[5pt] d. velocity increases. If the Fed wishes to increase the money supply it can: The purchase and sale of government bonds by the Fed for the purpose of altering bank reserves is referred to as: If the Fed wants to increase bank reserves, it can: If the Fed wants to reduce bank reserves, it can: Raise the discount rate or sell bonds on the open market. \end{array} c. real income increases. If the Federal Reserve increases the money supply, ceteris paribus, the: a. rate of interest is unaffected. While those goals were articulated in 1977, 2 the approach and tools used to implement those objectives have changed over time. c. has an expansionary effect on the money supply. Suppose a bank has $50,000 in transactions accounts and a minimum reserve requirement of 10 percent. c. When the Fed decreases the interest rate it p, Which of the following options is correct? 16) a) encourage banks to provide loans by lowering the discount rate Explanations: During a slow economy, the Fed encourages growth in the economy and the money supply by reducing reserve requirements and lowering the discount rate. Suppose the Federal Reserve wishes to use monetary policy to close an expansionary gap. Assume the Federal Reserve decides to sell $25 billion worth of U.S. Treasury bonds i. d. sells U.S. Treasury bills to the federal government. c. reduce the reserve requirement. D. The money multiplier decreases. c. first purchase, then sell, government securities. a) Describe what initially happens to the reserves of bank A, Open market operations refer to A. the buying and selling of government bonds by the Fed. If a bank does not have enough reserves, it can. }\\ Compute the following for the current year: Suppose the Federal Reserve purchases mortgage-backed securities (MBS). 1. The Federal Reserve Bank b. The result is that people _____. If the Fed is using open-market operations, will it, Key Concept: Open market operations When the Fed buys government securities, it a. If the Federal Reserve increases the money supply, ceteris paribus, the: Money supply is defined as all the currency and other liquid instruments held by banks/individuals in a country's economy in a given time. If the Fed purchases $10 million in government securities, then wh. 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. Increase the demand for money. If the Fed decides to engage in an open market operation to increase the money supply, what will it do? In the money market, an excess demand of money will: A. increase the supply of bonds, increase bond prices, and decrease interest rates. During the year, the company started and completed 45 motor homes at a cost of $\$ 55,000$ per unit. Name the three tools of monetary policy that the Federal Reserve System can do to combat unemployment/recession. 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? d) All of the above. 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. D. Decrease the supply of money. Suppose the Federal Reserve buys government securities from commercial banks. At what price per share did Wave Water issue common stock during 2012? C. purchases government bonds to increa, 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 Bank o, Assume that the required reserve ratio is 10%; banks hold no excess reserves, and the public holds all money in the form of currency. On October 24, 1929, the stock market crashed. 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. If the economy is currently in monetary equilibrium, an increase in the money supply will 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). If the Federal Reserve increases the discount rate: a. the federal funds rate must decrease. decreases, rises, If the Federal Reserve reduces interest rates, it wants: a. Consider an open market purchase by the Fed of $16 billion of Treasury bonds. Suppose the banks in the Federal Reserve System have $100 million in transactions accounts and the reserve requirement is 0.10. Your email address is only used to allow you to reset your password. All rights reserved. Money supply to decrease b. c. means by which the Fed acts as the government's banker. D.bond prices will rise, and interest rates will fall. 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. $$ 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. The Fed approved a 0.25 percentage point rate hike, the first increase since December 2018. C. decisions by the Fed to raise or lower interest rates. Remember that the transfer price must be between the full manufacturing cost per unit of $175 and the market price of$250 of comparable imports into France. Suppose the bond market and the money market both start out in equilibrium and then the Federal Reserve increases the money supply. Facility location decisions are significant for an organization because:? 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. 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. c. Fed sells bonds. The buying and selling of government bonds by the Fed to control bank reserves and the money supply are operations known as a. c) overseeing the buying and selling of government securities in the open market. Key Points. 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. 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 b. the Federal Reserve buys bonds on the open market. If the Federal Reserve commits to money supply growth of 2% per year and then the economy enters a recession, it would be time consistent to raise the growth rate to 5%. lower reserve requirements.I and III onlyCurrently the Fed sets monetary policy by targetingthe Fed funds rate From October 1983 . $$ A. d) setting interest r, Suppose the Federal Reserve sells $30 million worth of securities to a bank. B. the Fed is concerned about high unemployment rates. b. an increase in the demand for money balances. D. conduct open market sales. The Fed's decision amounted to a shift to a more cautious period of inflation fighting. \text{Income tax expense} \ldots & 100,000 \\ Required reserves decrease. 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. decreases the money supply, which leads to increased interest rates and a rise in investment spending. Fill in either rise/fall or increase/decrease. When the Fed raises the reserve requirement, it's executing contractionary policy. 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. Increase the reserve requirement C. Buy government securities D. Decrease the discount rate, When the Fed successfully decreases the money supply, GDP options: a. increases because the resulting increase in the interest rate leads to a decrease in investment b. increases because the resul, If the Fed wants to raise the interest rate, in the short run in the money market, the Fed: a) decreases the quantity of money b) increases the quantity of money c) shifts the demand for money curve leftward d) shifts the demand for money curve rightward, The Federal Reserve is becoming more cautious about rising inflationary pressure. Some terms may not be used. It allows people to obtain more goods than they can using money. What effect will this open market operation have on demand deposits and M1? If the Federal Reserve System buys government securities from commercial banks and the public: a. the money supply will contract. Which of the following is NOT a basic monetary policy tool used by the Fed? If you forget it there is no way for StudyStack A. buy $25,000 B. sell $25,000 C. sell $5,000 D. buy $1,000 E. sell $1,000, In times of economic downturn, the Federal Reserve will engage in ___ monetary policy by ___ bonds. Explore how the Federal Reserve uses monetary policies to control the money supply and affect interest rates in an effort to prevent another depression from occuring. Assume that banks use all funds except required, 13. The capital account surplus will increase. The reserve ratio is 20%. B. taxes. What fiscal policy tools are used to shift the aggregate demand curve? 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. B. fewer reserves and inc, Suppose you read in the paper that the Fed plans to reduce money supply. 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.