ceteris paribus, if the fed raises the reserve requirement, then: ceteris paribus, if the fed raises the reserve requirement, then:

b) increases, so the money supply decreases. 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. 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. 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. Suppose the banks in the Federal Reserve System have $400 million in transactions accounts and the reserve requirement is 0.10. Michael Haines d) means by which the Fed supplies the, Suppose the Fed wishes to use monetary policy to close an expansionary gap. If $200,000 is deposited in the bank, then ceteris paribus: Excess reserves will increase by $170,000. \text{Cost of Goods Sold}&\underline{\text{\hspace{19pt}85,250}}&\underline{\text{\hspace{19pt}85,250}}\\ It allows people to obtain more goods than they can using money. \text{Manufacturing overhead} \ldots & 1,200,000 \\ 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. 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. Banks now have more money to loan since they are required to hold less in reserve. When the Fed raises the reserve requirement, it's executing contractionary policy. B. the Fed is concerned about high unemployment rates. When the Federal Reserve makes an open market purchase, the Fed: buys securities from banks and the public, which will decrease tha. \end{array} The Treasury buys bonds in the open market c. The Fed reduces reserve requirements d. The Treasury sells b. c. Offer rat, 1. Suppose the Federal Reserve buys 100 mortgage-backed securities in the open market. If the Fed sells $1 million of government bonds, what is the effect on the economy's reserves and money supply? See Answer 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. An increase in the money supply and a decrease in the interest rate. The VOC was also the first recorded joint-stock company to get a fixed capital stock. The Board of Governors has ___ members,and they are appointed for ___ year terms. The Federal Reserve Bank b. Officials indicated an aggressive path ahead, with rate rises coming at each of the . Ceteris paribus, if the Fed raises the reserve requirement, then: The lending capacity of the banking system decreases. These actions can be classified as expansionary or contractionary, depending on the prevailing market conditions. 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. The Federal Reserve (the Fed), the central bank of the United States, has a Congressional mandate to promote maximum employment and price stability. To decrease the money supply the Fed can: Raise the reserve requirement, raise the discount rate, or sell bonds. The shape of the curve determines the impact of an aggregate demand shift on prices and output. Should the Fed increase or decrease the money supply? Raise reserve requirements 3. An increase in the reserve ratio: a. increases the money multiplier. Causes an increase in the federal funds rate, c. Increases reserve holdings of the commercial banks, d. Lowers the cost of borrowing from the Fed, e. Leads to an increase in the interbank, According to the Taylor rule, the Federal Reserve lowers the real interest rate as the output gap ____ or the inflation rate ______. It needs to balance economic growth. Cause a reduction in the dem. How does the Federal Reserve regulate the money supply? c. engage in open market sales of government securities. C. where a bank borrows reserves or bo, Open market operations are a) buying and selling of Federal Reserve Notes in the open market. b. foreign countries only. B. decreases the money supply, which leads to increased interest rates and a rise in investment spending. D. Transaction demand for, To ease monetary policy to fight a recession, the Federal Reserve would ____. It forces them to modify their procedures. 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. C. increase by $290 million. B. influence the discount rate. The key decision maker for general Federal Reserve policy is the: Free . (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? In response, people will a. sell bonds, thus driving up the interest rate. If the Fed sells bonds: A.aggregate demand will increase. 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 ______. Expansionary fiscal policy: a) decreases the money supply and raises interest rates. When you need a break, try one of the other activities listed below the flashcards like Matching, Snowman, or Hungry Bug. Ceteris paribus, if the reserve requirement is decreased to 0.05, then excess reserves will . copyright 2003-2023 Homework.Study.com. e. raise the reserve requirement. When the Federal Reserve increases the discount rate, banks will borrow A. fewer reserves and decrease lending. then the Fed. When the sellers deposit their checks in their bank accounts, their reserves will increase due to the deposits made. If the FED sells $10 million worth of government securities in an open market operation, then the money supply can potentially: A. increase by $150 million. Savings accounts and certificates of deposit are called. The Dutch East India Company (also known by the abbreviation "VOC" in Dutch) was the first publicly listed company ever to pay regular dividends. Over the 30-year life of the. are in the same box the next time you log in. 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. monetary base b. C. a traveler's check. d. equilibrium interest rate rises e. demand for money curve shifts leftward, 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}]. Decrease the price it asks for the bonds. Aggregate demand will decrease or shift to the left. In the market for reserves, if the federal funds rate is above the interest rate paid on excess reserves, an open market sale ________ the ________ of reserves, causing the federal funds rate to increase, everything else held constant. b. . b. decrease, upward. Determine whether each of the following, Open market operations are the a. buying and selling of Federal Reserve Notes in the open market. Wave Waters total liabilities on December 31, 2012, are $7,800. b) borrow more from the Fed and lend less to the public. (A) How will M1 be affected initially? Cause the money supply to increase, c. Not affect the money supply, d. Decrease the money multiplier. If the number of dollars you receive every year is the same, but prices are rising, then your nominal income: Stays the same but your real income falls. If the Federal Reserve raises interest rates, it means the money supply starts to deplete. \text{Total uncollectible? When the Fed buys government bonds, the reserve of the banking system: a) increases, so the money supply increases. Which of the following is likely to occur if people reduce their spending because they are worried about an economic downturn, ceteris paribus? Make sure you say increase or decrease/buy or sell. Suppose the economy is initially experiencing an inflationary gap. c-A forecast of a permanent demand increase shifts the investment line . Assume the Federal Reserve decides to sell $25 billion worth of U.S. Treasury bonds i. Suppose the U.S. government paid off all its debt. \begin{array}{l r} }\\ 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? All rights reserved. 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. At what price per share did Wave Water issue common stock during 2012? $$ b. the Federal Reserve buys bonds on the open market. \begin{array}{lcc} c. first purchase, then sell, government securities. If the Fed wants to raise short-term interest rates, it should a. act to increase the money supply. Professor Williams tutors her next-door neighbor's son in economics. (a) the money supply decreases, interest rates decline, GDP increases, and employment decreases (b) the money supply increases, interest rates increase, GDP decreases, 1) The Federal Reserve will lower short-run output by: a) Decreasing the money supply. Given an inflationary gap, the Federal Reserve will use monetary policy to do what to interest rates and to aggregate demand? Personal exemptions of$1,500. c. the Federal Reserve System. Where do you suppose the Fed gets the cash, to do this ? Was there a profit or a loss for the year ended December 31, 2012? 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. b. &\textbf{past due}&\textbf{past due}&\textbf{past due}\\[5pt] 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. What is the reserve-deposit ratio? This causes excess reserves to, the money supply to, and the money multiplier to. The lender who forecloses will then end up with about $40,000. D. All of the above. d) borrow reserves from the Federal Reserve. \text{Net Credit Sales}&\text{\$\hspace{1pt}1,454,500}&\text{\$\hspace{1pt}1,454,500}\\ If you forget it there is no way for StudyStack When the Federal Reserve Bank buys US Treasury bonds on the open market, then _______. 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. Name the three tools of monetary policy that the Federal Reserve System can do to combat unemployment/recession. Answer: Answer: B. 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? \begin{array}{c} Currency, transactions accounts, and traveler's checks. An expansionary fiscal policy is when a. the government lowers spending and raises taxes. 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. E.the Phillips curve will shift down. \text{Selling expenses} \ldots & 500,000 During the year, the company started and completed 45 motor homes at a cost of $\$ 55,000$ per unit. What cannot be used to shift aggregate demand? View Answer. &\textbf{past due}&\textbf{past due}&\textbf{past due}\\[5pt] }\\ \text{Full manufacturing cost per chainsaw} & \text{\$175}\\ a. increase the supply of bonds, thus driving up the interest rate. d. lend more reserves to commercial banks. C. decreases, 1. b. engage in open market purchases of government securities. c. the money supply is likely to increase. Sell Treasury bonds, bills, or notes on the bond market. If you knew the answer, click the green Know box. Explain. Get access to this video and our entire Q&A library, Monetary Policy & The Federal Reserve System. d. commercial bank, Assume all money is held in the form of currency. Which action would the federal reserve rate take to expand the money supply and lower the equilibrium interest rate? B.bond prices will fall, and interest rates will fall. We develop a model of price formation in a dealership market where monitoring of the information flow requires costly effort. b. means by which the Fed supplies the economy with currency. The company has marketing divisions throughout the world. As a result, the money supply will: a. increase by $1 billion. Ceteris paribus, what will occur if the Fed buys bonds through open-market operations? B. a dollar bill. Total costs for the year (summarized alphabetically) were as follows: C. Increase the supply of money. When the Fed decreases the discount rate, banks will a) borrow more from the Fed and lend more to the public. C. decrease interest rates. 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. The sale of bonds to the Fed by banks B. Cost of finished goods manufactured. Let's say the Fed had raised interest rates by 1% before the family got a loan, and the interest rate offered by banks for a $300,000 home mortgage loan rose to 4.5%. The Fed funds market is the market where banks a) buy and sell bonds to the Federal Reserve. What impact would this action have on the economy? 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. Ceteris paribus, if the Fed reduces the reserve requirement ratio, then: A) The lending capacity of the banking system increases. 26. 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. 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? ceteris paribus, if the fed raises the reserve requirement, then: Posted on . B) Total reserves increase D) The money multiplier decreases. Ceteris paribus, if the reserve requirement is decreased to 0.07, then excess reserves will increase by: $3 million. Get access to this video and our entire Q&A library, How the Federal Reserve Changes the Money Supply and Affects Interest Rates. b. money demand increases and the price level decreases. The Fed lowers the federal funds rate. c. the money supply and the price level would increase. 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. When aggregate demand exceeds the full-employment level of output, the result is: LEFT ARROW - move card to the Don't know pile. 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. On October 24, 1929, the stock market crashed. copyright 2003-2023 Homework.Study.com. Transcribed Image Text: Question Now we introduce banks that will act as liquidity providers in the economy. When the economy overheats, the government sometimes cools it down with higher taxes, spending reductions, and less money. 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? All other trademarks and copyrights are the property of their respective owners. What happens to interest rates? Ceteris paribus, if the Fed raises the reserve requirement, then: The lending capacity of the banking system decreases. c. commercial bank reserves will be unaffected. b. They will remain unchanged. a. The information provided should help you work out why you missed a question or three! Discuss how an open market purchase of $50 million worth of bonds (or treasury bills) by the Fed would a, According to Orthodox monetary theory, when the FED buys a bond from the banking sector, this is an example of a) an open market purchase and contractionary monetary policy. The Federal Reserve cut interest rates on March 3, 2020, in response to COVID-19. 1015. To decrease the money supply, the Fed can, raise the reserve requirement, raise the discount rate, or sell bonds. a. increases; rises b. does not change; falls c. decreases; rises d. decreases; falls e. increases; falls. If the Fed wants to increase the money supply through an open market operation, it will a. purchase government securities. b. Some terms may not be used. Decrease by $100, Suppose the Federal Reserve buys 3 treasury bonds from the public. c. first purchase, then sell, government secur, If the Fed wants to decrease the money supply by $5,000, the Fed will use open market operations to _____ worth of U.S. government bonds. **Instructions** When aggregate demand equals aggregate supply at the average price level. b. the interest rate rises and this stimulates consumption spending. Multiple . d. the money supply is not likely to change. to send you a reset link. A change in the reserve requirement affects: The money multiplier and excess reserves. You'll get a detailed solution from a subject matter expert that helps you learn core concepts. A) increases; supply. The financial sector has grown relative to the real economy and become more fragile. C. increase by $50 million. b. sell bonds, thus driving down the interest rate. 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. Terms of Service. Suppose that the sellers of government securities deposit the checks drawn on th. The Fed approved a 0.25 percentage point rate hike, the first increase since December 2018. An office worker who loses her job because she does not have the necessary computer skills is, ceteris paribus: Which of the following is likely to reduce the level of structural unemployment? B) means by which the Fed acts as the government's banker. Decrease the discount rate. "The federal bank can use open market operations as an instrument of monetary policy to manipulate interest rates and control supply of money." a. decrease; decrease; decrease b. 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? the process of selling Fed-issued IOUs between banks. b. buys or sells foreign currency. b. the same thing as the long-term growth rate of the money supply. Currency circulation in the economy will increase since the non-bank public will have sold their securities. Fiscal policy should be used to shift the aggregate demand curve. increase; decrease decrease; decrease increase; increase decrease; increas. In order to maintain price stability, the Federal Reserve has decided to engage in monetary restraint. How will the lending capacity of the banking system be affected if the reserve requirement is 5 percent? $$ If there is a recession, the Fed would most likely a. encourage banks to provide loans by. 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. That reduces liquidity and slows economic activity. \text{French income tax rate on the French division's operating income} & \text{45\\\%}\\ If the Fed is using open-market operations, will it, Key Concept: Open market operations When the Fed buys government securities, it a. Assume the reserve requirement is 5%. Therefore the correct option is b: If the Federal Reserve increases the money supply, ceteris paribus, the rate of interest decreases. Which of the following lends reserves to private banks? 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. Suppose the Federal Reserve buys government securities from commercial banks. Toby Vail. The number and relative size of firms in an industry. Suppose the bond market and the money market both start out in equilibrium and then the Federal Reserve increases the money supply. Suppose the banks in the Federal Reserve System have $100 million in transactions accounts and the reserve requirement is 0.10. If the fed increases the money supply, what will happen to each of the following (other things being equal)? 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. 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. c. increase, down. In a graph of the aggregate demand curve, an increase in investment by businesses is represented by a: Ceteris paribus, which of the following changes in the aggregate demand curve best characterizes a cutback in exports? decreases, rises, If the Federal Reserve reduces interest rates, it wants: a. 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. Now suppose the. Generally, when the Federal Reserve lowers interest rates, investment spending [{Blank}] and GDP [{Blank}]. Suppose commercial banks use excess reserves to buy government bonds from the public. \text{Total uncollectible? b) Lowering the nominal interest rate. A decrease in the reserve ratio will: a. b. The Great Depression was caused by a steep decline in the money supply when the stock market crashed in 1929. a. Of these, 43 were sold for $\$ 105,000$ each and two remain in finished goods inventory. The creation of a Federal Reserve System was recommended by. 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. 3. Total reserves increase.B. \text{General and administrative expenses} \ldots & 500,000 \\ Any import duty paid to the French authorities is a deductible expense for calculating French income taxes. If they have it, does that mean it exists already ? Suppose the banks in the Federal Reserve System have $400 million in transactions accounts and the reserve requirement is 0.10. Assume that the reserve requirement is 20%. When the Federal Reserve increases the discount-rate increases the discount rate as a part of a contractionary monetary policy, there is: A. It sells $20 billion in U.S. securities. Note The higher the reserve requirement, the less profit a bank makes with its money. \text{Percent uncollectible}&\text{8\\\%}&\text{17\\\%}&\text{31\\\%}\\ One HEADLINE article in the text has the title "Fed cuts key interest rate half-point to 1 percent." 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. Now suppose the Fed lowers. The capital account surplus will increase. The required reserve. &\textbf{0-60 days}&\textbf{61-120 days}&\textbf{Over 120 days}\\ 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? During the last recession (2008-09. B. decisions by the Fed to increase or decrease the money multiplier. Acting as fiscal agents for the Federal government. (ii) instructs the New York Fed to sell government securities in the foreign exchange market. Consider an expansionary open market operation. b. prices to increase by 3%. Use these flashcards to help memorize information. Price falls to the level of minimum average total cost. Money is functioning as a standard of value if you: Compare the prices of running shoes online to those in a sporting goods store. An increase in the money supply and an increase in the int. d) decreases, so the money supply decreases. D. open bonds operations. d. lower reserve requirements. B. expansionary monetary policy by selling Treasury securities. Which of the following is NOT a basic monetary policy tool used by the Fed? 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. \text{Total Expenses}&\text{\hspace{12pt}?}&\text{\hspace{12pt}? Ceteris paribus, if the Fed raises the reserve requirement, then: e The lending capacity of the banking system decreases. 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? The supply of money increases when: a. the value of money increases. 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. 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. C. money supply. b-A rise in corporate tax would shift the investment line outwards. B. a. c. the interest rate rises and this. D. decrease, Assume that the Federal Reserve establishes a minimum reserve requirement of 12.5%. D. The collectio. 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? Is this part of expansionary or contractionary fiscal or monetary policy? Use a balance sheet to show the impact on the bank's loans. The four components of aggregate demand are: Consumption, investment, government spending, and net exports. 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%. 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. The text describes the theoretical developments of the assignment rules regarding fiscal and monetary policies and the respective roles in macroeconomics stabilisation. The U.S. Treasury c. The U.S. Mint d. The federal government And involves: a. Quantitative easing b.