Suppose the Federal Reserve decided to sell $35 billion worth of government securities in the open market. An increase in the money supply, When the Federal Reserve increases the discount rate as a part of a contractionary monetary policy, there is: a) a decrease in the money supply and a decrease in the interest rate. 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. a. decrease; decrease; decrease b. eachus, which of the following will occur if the Fed buys bonds through open-market operations? }\\ }\\ Ceteris paribus, if the Fed raises the reserve requirement, then Most studied answer the lending capacity of the banking system decreases. The difference between price and average total cost multiplied by the quantity sold. Explain. Check all that apply. Suppose commercial banks use excess reserves to buy government bonds from the public. Embed Code - If you would like this activity on your web page, copy the script below and paste it into your web page. Cause the money supply to decrease, b. B. 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? 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? C. increase by $290 million. 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 Then click the card to flip it. Of these, 43 were sold for $\$ 105,000$ each and two remain in finished goods inventory. The Baltimore banks regional federal reserve bank. The number and relative size of firms in an industry. a. }\\ **Instructions** The aggregate demand curve should shift rightward. c. Purchase government bonds on the open market. Road Warrior Corporation began operations early in the current year, building luxury motor homes. Above equilibrium, this results in excess supply. If the Fed sells $1 million of government bonds, what is the effect on the economy s reserves and money supply? If the federal reserve increases the discount rate, the money supply will: a) decrease. View Answer. b) running the check-clearing process. Q02 . b. Federal Reserve approves first interest rate hike in more than three Financialization and Finance-Driven Capitalism . a) decrease, downward b) decrease, upward c) inc. Open market operations. The nominal interest rates falls. d. has a contractionary effect on the money supply. The Federal Reserve calculates and provides reserve balance requirements before the start of each maintenance period to depository institutions via the Reserves Central--Reserve Account Administration, which is available on the Federal Reserve Bank Services website. Suppose the Fed conducts $10 million open market purchase from Bank A. b. Our experts can answer your tough homework and study questions. All rights reserved. Increase government spending. Ceteris paribus, if the reserve requirement is decreased to 0.07, then excess reserves will increase by: $3 million. 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. \text{Variable manufacturing cost per chainsaw} & \text{\$100}\\ The Federal Reserve expands the money supply by 5 percent. Assume that the reserve requirement is 20%. 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. c) not change. b. buys or sells foreign currency. \text{General and Administrative Expense}&\text{\hspace{12pt}425,000}&\text{\hspace{12pt}425,000}\\ 1. When the sellers deposit their checks in their bank accounts, their reserves will increase due to the deposits made. \end{array} Money supply to decrease b. d, If the Federal Reserve wants to increase output, it increases A. government spending. c. the interest rate rises and this. \textbf{Year Ended December 31, 2019}\\ d) Lowering the real interest rate. b. the same thing as the long-term growth rate of the money supply. 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 ______. What are some basic monetary policy tools used by the Fed? 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. \end{array} For the federal deficit to be lowered, a) the federal gov't must decrease its spending and increase net exports. \text{Total per category}&\text{?}&\text{?}&\text{? Ceteris paribus, based on the aggregate supply curve, if the price level _______ the quantity of real output _______ increases. d) borrow reserves from the Federal Reserve. b. engage in open market purchases of government securities. b. it will be easier to obtain loans at commercial banks. Assume the Federal Reserve decides to sell $25 billion worth of U.S. Treasury bonds i. d) setting interest r, Suppose the Federal Reserve sells $30 million worth of securities to a bank. B. increase the supply of bonds, decrease bond prices, and increase interest rates. 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) decreases the money supply and raises interest rates. 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. c. the Federal Reserve System. Chapter 14 MCQs.docx - Chapter 14 1. a) b) c) d) Which of 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. Using the oversimplified money multiplier, the money suppl, Assume the reserve requirement is 10%. If the Fed decreases the money supply, GDP ________. Suppose that the sellers of government securities deposit the checks drawn on the New York Fed into their bank account. Answer the question based on the following balance sheet for the First National Bank. C. $120,000 in checkable-deposit liabilities and $32,000 in reserves. \begin{array}{lcc} 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. The Fed lowers the federal funds rate. decreases, rises, If the Federal Reserve reduces interest rates, it wants: a. B. The U.S. Treasury c. The U.S. Mint d. The federal government And involves: a. Quantitative easing b. 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? Raise discount rate 2. b. decrease, upward. The buying and selling of government securities by the Fed is known as: A. open market operations. c). Holding the deposits or reserves of commercial banks. c) borrow reserves from other banks. 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. \begin{array}{l r} In order to increase sales by one item per month, the monopolist must lower the price of its software by $1 to $49. c. buys or sells existing U.S. Treasury bills. 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. The result is that people _____. \text{Total Expenses}&\text{\hspace{12pt}?}&\text{\hspace{12pt}? Why does an open market purchase of Treasury securities by the Federal Reserve increase bank reserves? If you knew the answer, click the green Know box. The new reserve requirement exemption amount and low reserve tranche will be effective for all depository institutions beginning January 1, 2022. If the Federal Reserve wants to decrease the money supply, it should: a. (A) How will M1 be affected initially? ceteris paribus, if the fed raises the reserve requirement, then: ceteris paribus, if the fed raises the reserve requirement, then: d. decrease the discount rate. B. excess reserves at commercial banks will decrease. Also assume that banks do not hold excess reserves and there is no cash held by the public. Cause an excess demand for money and a decrease in the rate of interest. 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? It needs to balance economic growth. It also raises the reserve ratio. Facility location decisions are significant for an organization because:? See Answer Cost of finished goods manufactured. Assume the reserve requirement is 5%. If the fed increases the money supply, what will happen to each of the following (other things being equal)? c. the money supply is likely to increase. If total reserves for a bank are $10,000, excess reserves are zero, and demand deposits are $100,000, then the money multiplier must be: If total reserves for a bank are $150,000, excess reserves are zero, and demand deposits are $1,000,000, then the money multiplier must be: Suppose the entire banking system has $10 million in excess reserves and a required reserve ratio of 5 percent. Suppose the Federal Reserve engages in open-market operations. d. the U.S. Treasury. A) increases; supply. If the Federal Reserve increases the discount rate: a. the federal funds rate must decrease. 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. Ceteris paribus, if the Fed raised the required reserve ratio: Question: Ceteris paribus, if the Fed raised the required reserve ratio: This problem has been solved! \text{Direct materials used} \ldots & \$ 750,000\\ 26. then the Fed. d. lower reserve requirements. Your email address is only used to allow you to reset your password. Bank A with total deposits of $100 million isfully loaned up. b) increase. b) means by which the Fed acts as the government's banker. d. the demand for money. The Federal Open Market Committee is responsible for: a) reducing the Fed's reliance on open market operations. How will the lending capacity of the banking system be affected if the reserve requirement is 5 percent? B. expansionary monetary policy by selling Treasury securities. Ceteris paribus, an increase in _______ will cause an increase in ______. 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. The Economic Impacts of COVID-19 and City Lockdown: Early Evidence from Expansionary fiscal policy is when a. the government lowers spending and raises taxes. If the Fed conducts an open-market sale, bank reserves _ and the money supply is likely to _. Although it may feel like you're playing a game, your brain is still making more connections with the information to help you out. Consider an expansionary open market operation. The text describes the theoretical developments of the assignment rules regarding fiscal and monetary policies and the respective roles in macroeconomics stabilisation. B. decisions by the Fed to increase or decrease the money multiplier. The Burton Company manufactures chainsaws at its plant in Sandusky, Ohio. b. Ceteris paribus if the fed was targeting the quantity - Course Hero What is the reserve-deposit ratio? b. The Fed - Calculation of Reserve Balance Requirements See our A. 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 Fed lowers the federal funds rate. Decrease the demand for money. Terms of Service. In addition, the company had six partially completed units in its factory at year-end. An expansionary fiscal policy is when a. the government lowers spending and raises taxes. B.bond prices will fall, and interest rates will fall. Compute the following for the current year: D.bond prices will rise, and interest rates will fall. U.S.incometaxrateontheU.S.divisionsoperatingincomeFrenchincometaxrateontheFrenchdivisionsoperatingincomeFrenchimportdutyVariablemanufacturingcostperchainsawFullmanufacturingcostperchainsawSellingprice(netofmarketinganddistributioncosts)inFrance40%45%20%$100$175$300. Which of the following is likely to occur if OPEC increases the amount of oil it supplies and domestic energy prices fall, ceteris paribus? \text{General and administrative expenses} \ldots & 500,000 \\ Which of the following could cause a recession? Enter the email address you signed up with and we'll email you a reset link. \text{Total per category}&\text{?}&\text{?}&\text{? E. discount rate operations. D. The money multiplier decreases. 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. }\\ Keynes viewed the economy as inherently unstable and suggested that during a recession policy makers should: Cut taxes and/or increase government spending. Solved Ceteris paribus, if the Fed reduces the reserve | Chegg.com Decrease the price it asks for the bonds. Use the model of aggregate demand and aggregate supply to illustrate the impact of this change in the interest rate on output and the price level in the short run. Which of the following indicates the appropriate change in the U.S. economy? 3. The sale of bonds to the Fed by the public C. Increases in banks' excess reserves D. Increases in. Suppose the banks in the Federal Reserve System have $100 million in transactions accounts and the reserve requirement is 0.10. Solved I.The use of money and credit controls to change - Chegg 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. Suppose government spending increases. d. a decrease in the quantity de. &\textbf{Original Categories}&\textbf{Categories Change}\\[5pt] b. To decrease the money supply the Fed can: Raise the reserve requirement, raise the discount rate, or sell bonds. The Fed decides that it wants to expand the money supply by $40 million. Suppose the Federal Reserve buys government securities from commercial banks. Note The higher the reserve requirement, the less profit a bank makes with its money. 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%. $$ Its policymakers are welcoming the recent slowdown in price increases, and the disinflation trend gives . A combination of flexible rules and limited discretion. 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. Monetary policy can help the Federal Reserve System to protect, influence, and increase benefits to the economy. Ceteris paribus, if the Fed raises the reserve requirement, then: The money multiplier increases. 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. What impact would this action have on the economy? D. Describe the categories change effect on net income and accounts receivable. The reserve requirement, the discount rate, and the sale and purchase of Treasury bonds. 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 the Federal Reserve sells bonds as a part of a contractionary monetary policy, there is: A. A. change the liquidity levels of banks. copyright 2003-2023 Homework.Study.com. 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. Open market operations c. Printing mo. The answer is b. rate of interest decreases. d. raise the treasury bill rate. \text{Bad Debt Expense}&\text{\hspace{12pt}?}&\text{\hspace{12pt}? 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. d. velocity increases. B. decreases the bond price and decreases the interest rate. b. sell government securities. 3 . The following is the past-due category information for outstanding receivable debt for 2019. Conduct open market sales of government bonds. Total reserves increase.B. The result is that people a. increase the supply of bonds, thus driving up the interest rate.