are in the same box the next time you log in. Ceteris paribus, if the Fed reduces the reserve requirement ratio, then: A) The lending capacity of the banking system increases. 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. d) setting interest r, Suppose the Federal Reserve sells $30 million worth of securities to a bank. Suppose the banks in the Federal Reserve System have $400 million in transactions accounts and the reserve requirement is 0.10. Suppose that the Fed purchases from bank B some bonds in the open market and that, before the sale of bonds, bank B had no excess reserves. c) increases government spending and/or cuts taxes. Inflation rate _____. A sale of treasury bills by the federal reserve _____ interest rates and _____ the money supply. 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. Match the terms with definitions. Money is functioning as a standard of value if you: Compare the prices of running shoes online to those in a sporting goods store. c. first purchase, then sell, government securities. 23. 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. Ceteris paribus, if the reserve requirement is decreased to 0.05, then excess reserves will . 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! d. The Federal Reserve sells bonds on the open market. c) Increasing the money supply. 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. The required reserve. B. buy bonds lowering the price of bonds and driving up the interest rates. C. Increase the supply of money. Currency circulation in the economy will increase since the non-bank public will have sold their securities. d. commercial bank, Assume all money is held in the form of currency. 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. c. When the Fed decreases the interest rate it p; b. sell government securities. When the Fed raises the reserve requirement, it's executing contractionary policy. b. C) Excess reserves increase. Michael Haines b. \text{Percent uncollectible}&\text{8\\\%}&\text{17\\\%}&\text{31\\\%}\\ This is an example of which type of unemployment? Some terms may not be used. 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. **Instructions** a. monetary base b. An easing of monetary policy interest rates, which the demand for a currency and the fundamental value of the exchange rate. It is considered to be less efficient for an economy than the use of money. 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? 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. influence the federal funds rate. 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. Its marginal revenue curve is below its demand curve. e. raise the reserve requirement. D. all of the above. Changing the reserve requirement is expensive for banks. b. decrease, upward. A decrease in the reserve ratio will: a. A change in government spending, a change in taxes, and monetary policy. d. sells U.S. Treasury bills to the federal government. If the federal reserve increases the discount rate, the money supply will: a) decrease. Therefore the correct option is b: If the Federal Reserve increases the money supply, ceteris paribus, the rate of interest decreases. These actions can be classified as expansionary or contractionary, depending on the prevailing market conditions. 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. The purchase and sale of government bonds by the Fed for the purpose of altering bank reserves is referred to as: Members of the Federal Reserve Board of Governors are appointed for one fourteen-year term so that they: Make their decisions based on economic, rather than political, considerations. b. Above equilibrium, this results in excess supply. \text{Selling price (net of marketing and distribution costs) in France} & \text{\$300}\\ Ceteris paribus, if the Fed raises the reserve requirement, then: The money multiplier increases. Officials indicated an aggressive path ahead, with rate rises coming at each of the . Open market operations. Suppose the Federal Reserve buys government securities from the nonbank public. Is it mandatory for banks to buy gov't bonds during open-market operations by the Central Bank? 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. When the Federal Reserve increases the discount-rate increases the discount rate as a part of a contractionary monetary policy, there is: A. It creates money, it creates a transactions-account balance for the borrower, and the money supply increases. Transcribed Image Text: Question Now we introduce banks that will act as liquidity providers in the economy. 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. C. decreases, 1. B) means by which the Fed acts as the government's banker. Your email address is only used to allow you to reset your password. a) Describe what initially happens to the reserves of bank B. b) If bank B does not want to hold excess reserves, w, Suppose that the Fed undertakes an open market purchase of $25,000,000 worth of securities from a bank. 2) If, If the Fed increases the supply of money in the market, bond prices will and interest rates will. Look at the large card and try to recall what is on the other side. View Answer. 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. D. The value o, If the nominal interest rate were to increase, then: a. money demand decreases and the price level increases. What are some basic monetary policy tools used by the Fed? With everything else held constant, how will each of the following change as the result of the Fed's policy action (increase, decrease, or no change)? Use these flashcards to help memorize information. Its policymakers are welcoming the recent slowdown in price increases, and the disinflation trend gives . Assume that the currency-deposit ratio is 0.5. The number of deposit dollars the banking system can create from $1 of excess reserves. ceteris paribus, if the fed raises the reserve requirement, then: Posted on . Bank A with total deposits of $100 million isfully loaned up. Issuanceofstock.Cashdividends.Balance,December31,2012.$3ParCommonStock$375120AdditionalPaid-inCapital$2,225240RetainedEarnings$4,200990(69)AccumulatedOtherComprehensiveIncome$123TotalShareholdersEquity$6,812. Figure 14.10c depicts the aggregate investment function of an economy. a) decrease, downward b) decrease, upward c) inc. The Federal Reserve Bank b. b. increase the supply of bonds, thus driving down the interest ra, If the Fed begins to buy treasury bills to counter a recession, we would expect to see an increase in the a. demand for money. The Fed approved a 0.25 percentage point rate hike, the first increase since December 2018. Assuming this, how is the Fed likely to respond to fiscal stimulus if the economy is nearing full employment? The result is that people a. increase the supply of bonds, thus driving up the interest rate. \text{French income tax rate on the French division's operating income} & \text{45\\\%}\\ 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. Assume the Federal Reserve decides to sell $25 billion worth of U.S. Treasury bonds i. If $200,000 is deposited in the bank, then ceteris paribus: Excess reserves will increase by $170,000. \text{Total Expenses}&\text{\hspace{12pt}?}&\text{\hspace{12pt}? \text{Bad Debt Expense}&\text{\hspace{12pt}?}&\text{\hspace{12pt}? How would this affect the money supply? If a bank does not have enough reserves, it can. What is the impact of the purchase on the bank from which the Fed bought the securities? The Baltimore banks regional federal reserve bank. Free . b) borrow more from the Fed and lend less to the public. b. the price level increases. a) increases; decreases, b) decreases; increases, c) decreases; decreases, d) increases; increases. }\\ 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. Suppose further that the required reserve, Explain briefly: a. Now suppose the Fed lowers. \text{Percent uncollectible}&\text{8\\\%}&\text{17\\\%}&\text{31\\\%}\\ (A) How will M1 be affected initially? See Answer Assume central bank money (H) is initially equal to $100 million. The reserve ratio is 20%. The new reserve requirement exemption amount and low reserve tranche will be effective for all depository institutions beginning January 1, 2022. Suppose the Federal Reserve buys government securities from the non-bank public. As a result, the money supply will: a. increase by $1 billion. Biagio Bossone. 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. &\textbf{past due}&\textbf{past due}&\textbf{past due}\\[5pt] \text{Expenses:}\\ B ) bond yields will fall 2) A negative output gap indicates that A) nominal GDP is below real GDP. $140,000 in checkable-deposit liabilities and $46,000 in reserves. Should the Fed increase or decrease the money supply? 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. Suppose the Federal Reserve undertakes an open market purchase of government bonds. 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. The Board of Governors has ___ members,and they are appointed for ___ year terms. The result is that people _____. 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. When you've placed seven or more cards in the Don't know box, click "retry" to try those cards again. D) Required reserves decrease. \text{Gross Margin}&\text{\hspace{5pt}1,369,250}&\text{\hspace{5pt}1,369,250}\\ c. the money supply and the price level would increase. 1. If they have it, does that mean it exists already ? 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. A. expands, higher, higher B. expands, higher, lower C. expands, lower, higher D. contracts, In the market for money, when the demand for funds increases, the interest rate _______ and the amount of money borrowed _______ . b) increase causing an increase in investment spending shifting aggregate deman, An expansionary monetary policy ____ the money supply, causing the real interest rate to ____ and planned investment to ____. By raising or lowering the _______, the Fed changes the cost of money for banks, which impacts the incentive to borrow reserves. 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. \text{Net Credit Sales}&\text{\$\hspace{1pt}1,454,500}&\text{\$\hspace{1pt}1,454,500}\\ a. increases, rises b. increases, falls c. decreases, falls d. decreases, does not change e. . Each bond is worth $1000 (so the Fed has bought $3000 worth of bonds). To manage earnings more favorably, Elegant Linens considers changing the past-due categories as follows. $$ 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. 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. You'll get a detailed solution from a subject matter expert that helps you learn core concepts. The Fed sells Treasury bills in the open market b. b. increase the money supply. B. In response, people will a. sell bonds, thus driving up the interest rate. 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. It also raises the reserve ratio. The Treasury buys bonds in the open market c. The Fed reduces reserve requirements d. The Treasury sells b. a. Acting as fiscal agents for the Federal government. An open market operation is ____?A. The sale of bonds to the Fed by banks B. If the Fed is using open-market operations, An open market operation is a purchase or sale of ___ by the ___ in the open market. Total reserves increase.B. Suppose the Federal Reserve conducts an open market purchase of $150 million government securities from the non-bank public. \text{Cost of Goods Sold}&\underline{\text{\hspace{19pt}85,250}}&\underline{\text{\hspace{19pt}85,250}}\\ d) Lowering the real interest rate. It improves aggregate demand, thus increasing the country's GDP. b. a decrease in the demand for money. b) running the check-clearing process. A. To see how well you know the information, try the Quiz or Test activity. \textbf{Comparative Income Statements}\\ 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. copyright 2003-2023 Homework.Study.com. a. higher, higher b. higher, lower c. lower, higher d. lower, lower, When lots of people put their money into bonds, the demand for money and the interest rate on bonds. Raise the reserve requirement, increase the discount rate, or . An increase in the money supply and a decrease in the interest rate. D. the buying and selling of stocks i, Suppose again that Third National Bank has reserves of $20,000 and check able deposits of $100,000. (a) money supply increases, investment increases, aggregate demand increases (b) money supply increases, the interest rate increases, If the Fed increases the money supply to bring down the federal funds rate: A. c. an increase in the demand for bonds and a rise in bond prices. C. increase by $50 million. Check all that apply. Ceteris paribus, if the Fed raises the reserve requirement, then: The lending capacity of the banking system decreases. Decrease by $100, Suppose the Federal Reserve buys 3 treasury bonds from the public. 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. If the Federal Reserve System buys government securities from commercial banks and the public: a. the money supply will contract. According to the monetarist view, the aggregate supply curve is: Vertical at the natural rate of unemployment. $$ c. state and local government agencies only. B. increase the supply of bonds, decrease bond prices, and increase 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. B. decreases the bond price and decreases the interest rate. The following is the past-due category information for outstanding receivable debt for 2019. They will increase. 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. Total deposits decrease. 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? D. All of the above. Suppose the Federal Reserve buys government securities from commercial banks. b. the interest rate increases c. the Federal Reserve purchases bonds. Cause a reduction in the dem. C. the Fed is seeking, All else equal, if the Federal Reserve decreases the money supply, interest rates will _ and the dollar will _ against other currencies. The Board of Governors has___ members, and they are appointed for ___year terms. The Fed wishes to increase the money supply it can, Economics Chapter 15 (BEST ALL THE ANSWERS), Sp 8 Unidad 1A - Un fin de semana en Madrid. 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). c. real income increases. What cannot be used to shift aggregate demand? d. The Federal Reserve sells bonds on the open marke, If the Fed purchases government securities on the open market, the quantity of money and the nominal interest rate. Multiple Choice . If there is a recession, the Fed would most likely a. encourage banks to provide loans by. How does it affect the money supply? }\\ 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? b. increase the supply of bonds, thus driving down the interest rate. The Fed lowers the federal funds rate. Decrease in the federal funds rate B. 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.. In order to maintain price stability, the Federal Reserve has decided to engage in monetary restraint. Where do you suppose the Fed gets the cash, to do this ? \text{General and administrative expenses} \ldots & 500,000 \\ 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. Price charged is always less than marginal revenue. Fill in either rise/fall or increase/decrease. Hence C is the correct option. It forces them to modify their procedures. b) an open market sale and expansionary monetary policy. Increase the reserve requirement. (Income taxes are not included in the computation of the cost-based transfer prices.) \text{Direct labor} \ldots & 800,000\\ When the Fed buys government bonds, the reserve of the banking system: a) increases, so the money supply increases. b. increase causing an increase in investment spending shifting aggregate demand, When the Federal Reserve increases the money supply, it aggregate demand and moves the economy along the Phillips curve to a point with inflation and unemployment. Suppose the Federal Reserve wishes to use monetary policy to close an expansionary gap. c. the government increases spending and lowers taxes. b. the money supply is likely to decrease. b. the same thing as the long-term growth rate of the money supply. The difference in potential money creation when the Bank of Canada buys government securities from the chartered banks rather than from the public is due to the fact that a. excess reserves are larger when the Bank of Canada buys government securities from the chartered banks. What is the reserve-deposit ratio? The Federal Reserve (the Fed), the central bank of the United States, has a Congressional mandate to promote maximum employment and price stability. Expansionary fiscal policy is when a. the government lowers spending and raises taxes. D. interest rates will increase. Interest rates b. 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? Cause the money supply to increase, c. Not affect the money supply, d. Decrease the money multiplier. The aggregate demand curve should shift rightward. \textbf{Year Ended December 31, 2019}\\ U.S.incometaxrateontheU.S.divisionsoperatingincomeFrenchincometaxrateontheFrenchdivisionsoperatingincomeFrenchimportdutyVariablemanufacturingcostperchainsawFullmanufacturingcostperchainsawSellingprice(netofmarketinganddistributioncosts)inFrance40%45%20%$100$175$300. If the Fed sells $5 million worth of government securities to the public, what will be the change in the money supply? \text{Net Income (Loss)}&\text{\hspace{12pt}?}&\text{\hspace{12pt}? Make sure you say increase or decrease/buy or sell. b. will cause banks to make more loans. The supply of money increases when: a. the value of money increases. The French import duty is charged on the price at which the product is transferred into France. Get access to this video and our entire Q&A library, Monetary Policy & The Federal Reserve System.