Open market operations c. Printing mo. 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}]. Determine the December 31, 2012, balances in Wave Waters shareholders equity accounts and total shareholders equity on this date. 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. To see how well you know the information, try the Quiz or Test activity. See Answer Ceteris paribus, if the Fed raised the required reserve ratio: Expert Answer c) Increasing the money supply. Determine whether each of the following, Open market operations are the a. buying and selling of Federal Reserve Notes in the open market. b. prices to increase by 3%. Increase government spending. \begin{array}{c} 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). "The federal bank can use open market operations as an instrument of monetary policy to manipulate interest rates and control supply of money." \end{array} Therefore the correct option is b: If the Federal Reserve increases the money supply, ceteris paribus, the rate of interest decreases. c) an open market sale. This problem has been solved! On October 24, 1929, the stock market crashed. \textbf{ELEGANT LINENS}\\ The aggregate demand curve should shift rightward. A) increases; supply. The current account deficit will increase. c. the interest rate rises and this. 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? B) means by which the Fed acts as the government's banker. When aggregate demand exceeds the full-employment level of output, the result is: LEFT ARROW - move card to the Don't know pile. If the Federal Reserve wants to decrease the money supply, it should: a. c) overseeing the buying and selling of government securities in the open market. C. Increase the supply of money. If $200,000 is deposited in the bank, then ceteris paribus: Excess reserves will increase by $170,000. B. decrease by $2.9 million. 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. the price level increases. 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. Which of the following is likely to cause a leftward shift in the aggregate supply curve, ceteris paribus? 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 aggregate demand curve should shift rightward. C. The nominal interest rate does not change. Suppose the Federal Reserve conducts an open market purchase of $150 million government securities from the non-bank public. Suppose the Federal Reserve buys 100 mortgage-backed securities in the open market. Total costs for the year (summarized alphabetically) were as follows: }\\ Federal Reserve purchases of government bonds ______________ total reserves and _________________ the money supply. Changing the reserve requirement is expensive for banks. \textbf{Comparative Income Statements}\\ b. sell government securities. Here are the answers with discussion for yesterday's quiz. When you need a break, try one of the other activities listed below the flashcards like Matching, Snowman, or Hungry Bug. The company has marketing divisions throughout the world. What happens to interest rates? 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 result is that people a. increase the supply of bonds, thus driving up the interest rate. (ii) instructs the New York Fed to sell government securities in the foreign exchange market. U.S. goods are less expensive for Americans so they buy fewer imports and more domestic goods. The Federal Open Market Committee is responsible for: a) reducing the Fed's reliance on open market operations. B. influence the discount rate. The use of money and credit controls to change macroeconomic activity is known as: Monetary policy. How does the Federal Reserve regulate the money supply? B. d. velocity increases. b. Which of the following indicates the appropriate change in the U.S. economy? C. the price level in the economy will rise, thus i. . b. it will be easier to obtain loans at commercial banks. &\textbf{past due}&\textbf{past due}&\textbf{past due}\\[5pt] Otherwise, click the red Don't know box. The lender who forecloses will then end up with about $40,000. B. 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! 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. Suppose the Federal Reserve buys government securities from commercial banks. The Federal Reserve Bank b. On March 5 and 6, I surveyed over 500 consumers about their concerns about COVID-19, awareness of the Fed's . B. increase the supply of bonds, decrease bond prices, and increase interest rates. ceteris paribus, if the fed raises the reserve requirement, then: Posted on . b) increases the money supply and lowers interest rates. \text{Accounts receivable amount}&\text{\$\hspace{1pt}232,000}&\text{\$\hspace{1pt}129,000}&\text{\$\hspace{1pt}100,400}\\ The financial sector has grown relative to the real economy and become more fragile. B) bond yields will fall C) bond yields will increase as well. lower reserve requirements.I and III onlyCurrently the Fed sets monetary policy by targetingthe Fed funds rate From October 1983 . C. a traveler's check. 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. An open market operation decreases the money supply when the Federal Reserve a. sells bonds to banks, which increases bank reserves. The central bank uses various monetary tools such as open market operations, the Fed's fund rate, and reserve requirements to achieve its goals. 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. Increase / Decrease b. Q01 . Money supply to decrease b. Suppose that the sellers of government securities deposit the checks drawn on the New York Fed into their bank account. c. Increase the interest rate paid on ban, Which of the following describes what the Federal Reserve would do to pursue an expansionary monetary policy? In order to decrease the money supply, the Fed can. 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? Cause a reduction in the dem. This is an example of which type of unemployment? Terms of Service. 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. Suppose that the sellers of government securities redeem these checks drawn on the New York Fed for currency. Lowers the cost of borrowing from the Fed, encouraging banks to make loans to the general public. Ceteris paribus, what will occur if the Fed buys bonds through open-market operations? \end{matrix} c. buys or sells existing U.S. Treasury bills. $$ 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? Aggregate supply will increase or shift to the right. The money supply increases. \text{Total per category}&\text{?}&\text{?}&\text{? c. state and local government agencies only. b. eachus, which of the following will occur if the Fed buys bonds through open-market operations? 23. Suppose a market is dominated by three firms. Excess reserves increase. 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. The required reserve ratio is 16%. B. The Great Depression was caused by a steep decline in the money supply when the stock market crashed in 1929. 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 ______. Suppose the banks in the Federal Reserve System have $400 million in transactions accounts and the reserve requirement is 0.10. 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. d. lower reserve requirements. Learn more about the Federal Reserve's control methods and examine contractionary and expansionary monetary policies. 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. 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. B. decreases the bond price and decreases the interest rate. 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. B. federal bond operations. Working Paper No. Suppose the economy is initially experiencing an inflationary gap. Makers, but perfectly competitive firms are price takers. d. The Federal Reserve sells bonds on the open market. 1. b. If the Federal Reserve increases the money supply, ceteris paribus, the: a. rate of interest is unaffected. 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 answer is b. rate of interest decreases. The number and relative size of firms in an industry. Make sure to remember your password. raise the discount rate. The Board of Governors has___ members, and they are appointed for ___year terms. 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. If Bank A and all the other banks use reserves to purchase only securities, what will happen to deposits in the banking system and how much does it expand? If the Fed conducts an open-market sale, bank reserves _ and the money supply is likely to _. c. Purchase government bonds on the open market. B. an exchange between a private bank and the Federal Reserve where the Fed buys or sells government bonds to private banks. If price is greater than marginal cost, a competitive firm should increase output because additional units of output will: Add to the firm's profits (or reduce losses). 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. Instead of paying her for this service,the neighbor washes the professor's car. What impact would this action have on the economy? 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. 1. c. increase, down. c. means by which the Fed acts as the government's banker. b. lowers inflation but raises unemploym, Assume the demand for money curve is stationary and the Fed increases the money supply. 3 . The equilibrium price level and equilibrium output should both increase. Suppose further that the required reserve, Explain briefly: a. The buying and selling of government bonds by the Fed to control bank reserves and the money supply are operations known as a. 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? This action increased the money supply by $2 million. Decrease by $100, Suppose the Federal Reserve buys 3 treasury bonds from the public. 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. View Answer. 3. 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. Suppose government spending increases. 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. \text{French import duty} & \text{20\\\%}\\ Required reserves decrease. Price falls to the level of minimum average total cost. 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. What effect will this open market operation have on demand deposits and M1? a. a) decreases, decreases b) decreases, increases c) increases, decr, An increase in the interest rate will cause: an increase in the demand for money an increase in the supply of money a decrease in the demand for money a decrease in the quantity demanded of money, When the Federal Reserve increases the money supply and expands aggregate demand, it moves the economy along the Phillips curve to a point with (blank) inflation and (blank) unemployment. If there is an adverse 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 b. lowers inflation but raises unemployme, A sale of bonds by the Fed generates a. a decrease in the demand for money balances. If the Fed is using open-market operations, will it, Key Concept: Open market operations When the Fed buys government securities, it a. It allows people to obtain more goods than they can using money. B) The lending capacity of the banking system decreases. c. Offer rat, 1. Sell Treasury bonds, bills, or notes on the bond market. The new reserve requirement exemption amount and low reserve tranche will be effective for all depository institutions beginning January 1, 2022. D. all of the above. \text{Direct labor} \ldots & 800,000\\ Government bond operations. 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. b. 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. 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. 41. The Federal Reserve cut interest rates on March 3, 2020, in response to COVID-19. B. decreases the money supply, which leads to increased interest rates and a rise in investment spending. $$ Find the taxable wages. c. the Federal Reserve System. Wave Waters total liabilities on December 31, 2012, are $7,800. b. engage in open market purchases of government securities. Although it may feel like you're playing a game, your brain is still making more connections with the information to help you out. }\\ c) decreases, so the money supply increases. Generally, the central bank. Interest rates b. The Fed sells Treasury bills in the open market b. Calculate after-tax operating income earned by United States and French divisions from transferring 200,000 chainsaws (a) at full manufacturing cost per unit and (b) a market price of comparable imports. Answer: D. 15. \text{Full manufacturing cost per chainsaw} & \text{\$175}\\ The following is the past-due category information for outstanding receivable debt for 2019. 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. Assume the Federal Reserve decides to sell $25 billion worth of U.S. Treasury bonds i. 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 ______.