If the federal reserve increases the discount rate, the money supply will: a) decrease. Suppose that the sellers of government securities redeem these checks drawn on the New York Fed for currency. &\textbf{Original Categories}&\textbf{Categories Change}\\[5pt] On October 24, 1929, the stock market crashed. Michael Haines If the economy is currently in monetary equilibrium, an increase in the money supply will a. Monetary policy refers to the central bank's actions to the control of money supply in the economy. D. decrease, Assume that the Federal Reserve establishes a minimum reserve requirement of 12.5%. Suppose the Federal Reserve purchases mortgage-backed securities (MBS). Assume a fixed demand for money curve and the Fed decreases the money supply. 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. State tax on first $3,000: 1.5$ percent. (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. B. influence the discount rate. Multiple . B. a dollar bill. When you need a break, try one of the other activities listed below the flashcards like Matching, Snowman, or Hungry Bug. Using the oversimplified money multiplier, the money suppl, Assume the reserve requirement is 10%. d. the U.S. Treasury. 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 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. This action increased the money supply by $2 million. Ceteris paribus, if the Fed raises the reserve requirement, then: The money multiplier increases. If you knew the answer, click the green Know box. a. Corporate finance for the pre-industrial world began to emerge in the Italian city-states and the low countries of Europe from the 15th century.. Assuming this, how is the Fed likely to respond to fiscal stimulus if the economy is nearing full employment? b. When aggregate demand equals aggregate supply at the average price level. Price falls to the level of minimum average total cost. B. purchases government bonds to decrease the money supply. The money supply increases. Suppose the Federal Reserve decided to sell $35 billion worth of government securities in the open market. b. foreign countries only. 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. Total deposits decrease. Instead of paying her for this service,the neighbor washes the professor's car. &\textbf{0-30 days}&\textbf{31-90 days}&\textbf{Over 90 days}\\ d. the price level decreases. Which of the following is likely to occur if OPEC increases the amount of oil it supplies and domestic energy prices fall, ceteris paribus? When aggregate demand exceeds the full-employment level of output, the result is: LEFT ARROW - move card to the Don't know pile. \text{Income tax expense} \ldots & 100,000 \\ 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. 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. Which of the following is NOT a possible source of last-minute reserves for a private bank? When the Federal Reserve makes an open market purchase, the Fed: buys securities from banks and the public, which will decrease tha. a)increases; increases b)increases; decreases c)decreases; increase, 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). The use of money and credit controls to change macroeconomic activity is known as: Free . c. the Federal Reserve System. a. increases; rises b. does not change; falls c. decreases; rises d. decreases; falls e. increases; falls. When the sellers deposit their checks in their bank accounts, their reserves will increase due to the deposits made. 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. b-A rise in corporate tax would shift the investment line outwards. b. a decrease in the demand for money. D. Describe the categories change effect on net income and accounts receivable. &\textbf{0-60 days}&\textbf{61-120 days}&\textbf{Over 120 days}\\ C. The lending capacity of the banking system increases. c. real income increases. b. b) increases the money supply and lowers interest rates. Change in Excess Reserve = -100000000. D.bond prices will rise, and interest rates will fall. \text{General and Administrative Expense}&\text{\hspace{12pt}425,000}&\text{\hspace{12pt}425,000}\\ d. commercial bank, Assume all money is held in the form of currency. \textbf{Year Ended December 31, 2019}\\ U.S. goods are less expensive for Americans so they buy fewer imports and more domestic goods. \text{Total uncollectible? Ceteris paribus, if the Fed reduces the reserve requirement, then: A. - 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. When the Federal Reserve sells bonds as a part of a contractionary monetary policy, there is: A. Use these flashcards to help memorize information. b. A combination of flexible rules and limited discretion. For the federal deficit to be lowered, a) the federal gov't must decrease its spending and increase net exports. Government bond operations. Suppose that the sellers of government securities deposit the checks drawn on the New York Fed into their bank account. A perfectly competitive firm currently sells 30,000 cartons of eggs at $1.25 each. When the Fed buys bonds in open-market operations, it _____ the money supply. Increase the reserve requirement. By the end of the year, over $40 billion of wealth had vanished. 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? Answer the question based on the following balance sheet for the First National Bank. Ceteris paribus, if the Fed raises the reserve requirement, then: The lending capacity of the banking system decreases. copyright 2003-2023 Homework.Study.com. Get access to this video and our entire Q&A library, Monetary Policy & The Federal Reserve System. The fixed monthly cost is $21,000, and the variable cost. The nominal interest rates rises. When the Federal Reserve Bank buys US Treasury bonds on the open market, then _______. International Financial Advisor. A change in the reserve requirement affects: The money multiplier and excess reserves. b. copyright 2003-2023 Homework.Study.com. b. decrease the money supply and decrease aggregate demand. b) running the check-clearing process. Cost of finished goods manufactured. c. the interest rate rises and this. 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 ______. Open market operations c. Printing mo. Hence C is the correct option. are the minimum amount of reserves a bank is required to hold. Raise the reserve requirement, increase the discount rate, or . 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%. The capital account surplus will increase. Ceteris paribus, if the reserve requirement is decreased to 0.07, then excess reserves will increase by: $3 million. It is considered to be less efficient for an economy than the use of money. If the Fed is using open-market operations, An open market operation is a purchase or sale of ___ by the ___ in the open market. 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. 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. \end{matrix} 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. C. increase by $50 million. Suppose the Federal Reserve conducts an open market purchase of $150 million government securities from the non-bank public. C) Excess reserves increase. This problem has been solved! If you've accidentally put the card in the wrong box, just click on the card to take it out of the box. The Fed sells Treasury bills in the open market b. U.S.incometaxrateontheU.S.divisionsoperatingincome40%FrenchincometaxrateontheFrenchdivisionsoperatingincome45%Frenchimportduty20%Variablemanufacturingcostperchainsaw$100Fullmanufacturingcostperchainsaw$175Sellingprice(netofmarketinganddistributioncosts)inFrance$300\begin{matrix} The reserve ratio is 20%. Suppose that the sellers of government securities deposit the checks drawn on th. \textbf{Comparative Income Statements}\\ a. Open-market operations occur when the Federal Reserve: a. buys U.S. Treasury bills from the federal government. Suppose the Federal Reserve buys government securities from the non-bank public. 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. Interest rates b. What happens to interest rates? c. state and local government agencies only. 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. 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? As a result, the money supply will: a. increase by $1 billion. How would this affect the money supply? A. a. A) increases; supply. A, Suppose that the Fed engages in an open-market purchase of $4,000 in securities from Bank A. The Dutch East India Company (also known by the abbreviation "VOC" in Dutch) was the first publicly listed company ever to pay regular dividends. At what price per share did Wave Water issue common stock during 2012? What effect will this open market operation have on demand deposits and M1? If the Fed conducts an open-market sale, bank reserves _ and the money supply is likely to _. If the Fed sells $1 million of government bonds, what is the effect on the economy s reserves and money supply? c. increase, down. 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. It needs to balance economic growth. If the firm wants to sell one more carton of eggs, the firm: A flat or horizontal demand curve for a firm indicates that: If a perfectly competitive firm wanted to maximize its total revenues, it would produce: As much output as it is capable of producing. c. Fed sells bonds. d) means by which the Fed supplies the, Suppose the Fed wishes to use monetary policy to close an expansionary gap. Professor Williams tutors her next-door neighbor's son in economics. 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. E. discount rate operations. \text{Percent uncollectible}&\text{8\\\%}&\text{17\\\%}&\text{31\\\%}\\ 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 required reserve. d) decreases, so the money supply decreases. 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. If a bank does not have enough reserves, it can. Martin takes $150 out of his checking account and hides it in his house as cash. Your email address is only used to allow you to reset your password. 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. Ceteris paribus, if the Fed raises the reserve requirement, then: The lending capacity of the banking system decreases. Cause an excess demand for money and a decrease in the rate of interest. b) an open market sale and expansionary monetary policy. CBDC Next-Level: A New Architecture for Financial "Super-Stability" by. C. Increase the supply of money. c. the money supply is likely to increase. . 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. Total costs for the year (summarized alphabetically) were as follows: d) Lowering the real interest rate. The money supply decreases. Decrease the price it asks for the bonds. b. Embed Code - If you would like this activity on your web page, copy the script below and paste it into your web page. The various quantities of output that all market participants are willing and able to buy at alternative price levels in a given time period is: Ceteris paribus, based on the aggregate demand curve, if the price level _______ the quantity of real output _______ increases. Money is functioning as a standard of value if you: Compare the prices of running shoes online to those in a sporting goods store. Which action would the federal reserve rate take to expand the money supply and lower the equilibrium interest rate? 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? Federal Reserve purchases of government bonds ______________ total reserves and _________________ the money supply. b. prices to increase by 3%. c. the money supply divided by nominal GDP. 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? Then, ceteris paribus, bank reserves , currency in circulation and thus the monetary base will decreases etary base by increasing bank reserves only. Keynes viewed the economy as inherently unstable and suggested that during a recession policy makers should: Cut taxes and/or increase government spending. a. Conduct open market purchases. Currency, transactions accounts, and traveler's checks. The nominal interest rates falls. b. buys bonds from banks, which increases bank reserves. Figure 14.10c depicts the aggregate investment function of an economy. B) The lending capacity of the banking system decreases. 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. A lower amount of money in the economy makes it more expensive to borrow for banks and consumers.. The aggregate demand curve should shift rightward. Which of the following is likely to cause a leftward shift in the aggregate supply curve, ceteris paribus? Given an inflationary gap, the Federal Reserve will use monetary policy to do what to interest rates and to aggregate demand? c. prices to increase by 2%. The information provided should help you work out why you missed a question or three! Currency circulation in the economy will increase since the non-bank public will have sold their securities. The text describes the theoretical developments of the assignment rules regarding fiscal and monetary policies and the respective roles in macroeconomics stabilisation. Suppose the U.S. government paid off all its debt. a. 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}]. Conduct open market sales of government bonds. 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. 26. b. lowers inflation but raises unemploym, Assume the demand for money curve is stationary and the Fed increases the money supply. \begin{array}{lcc} The Federal Reserve expands the money supply by 5 percent. \begin{array}{lcc} a. increase the supply of bonds, thus driving up the interest rate. d) increases government spending and/or cuts taxes. Price charged is always less than marginal revenue. \text{Accounts receivable amount}&\text{\$\hspace{1pt}263,000}&\text{\$\hspace{1pt}134,200}&\text{\$\hspace{1pt}64,200}\\ b. See Answer Ceteris paribus, if the Fed raised the required reserve ratio: Expert Answer 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. D. change the level of reserves it holds for banks. What impact would this action have on the economy? If $200,000 is deposited in the bank, then ceteris paribus: Excess reserves will increase by $170,000.