B. decrease by $2.9 million. \end{matrix} If the Fed sells government bonds, this will: A. Conduct open market sales of government bonds. a) 0.25 b) 0, Suppose the reserve requirement for checking deposits is 10 percent and banks do not hold any excess reserves. Monetary Policy quiz Flashcards | Quizlet Assume the Federal Reserve decides to sell $25 billion worth of U.S. Treasury bonds i. 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. D. Decrease the supply of money. 3. Economics of Money: Chapter 15 Flashcards - Easy Notecards If you've accidentally put the card in the wrong box, just click on the card to take it out of the box. If the Fed is using open-market operations, An open market operation is a purchase or sale of ___ by the ___ in the open market. 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! A change in the reserve requirement affects a the Econ Final Flashcards - Cram.com The Fed's decision amounted to a shift to a more cautious period of inflation fighting. 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. Transcribed Image Text: Question Now we introduce banks that will act as liquidity providers in the economy. C. increase by $290 million. Suppose the Federal Reserve purchases mortgage-backed securities (MBS). In order to decrease the money supply, the Fed can. Ceteris paribus, based on the aggregate supply curve, if the price level _______ the quantity of real output _______ increases. c) decreases, so the money supply increases. ceteris paribus, if the fed raises the reserve requirement, then: Road Warrior Corporation began operations early in the current year, building luxury motor homes. 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. Interest Rates / Real GDP a. b) an open market sale and expansionary monetary policy. 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 _______ . The lender who forecloses will then end up with about $40,000. 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. velocity increases. Although it may feel like you're playing a game, your brain is still making more connections with the information to help you out. How does the Federal Reserve regulate the money supply? In the money market, an excess demand of money will: A. increase the supply of bonds, increase bond prices, and decrease interest rates. Raise reserve requirements 3. What effect will this open market operation have on demand deposits and M1? Quiz 14: Monetary Policy | Quiz+ 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? \end{array} c. commercial bank reserves will be unaffected. The answer is b. rate of interest decreases. (Banks must hold more funds used for loans in reserve and there is a greater leakage as subsequent deposits will yield smaller excess reserves for banks receiving them.) 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. c. prices to increase by 2%. (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. The long-term real interest rate _____. FROM THE STUDY SET 26. If the Fed raises the reserve requirement, the money supply _____. 2. The Fed decides that it wants to expand the money supply by $40 million. What is the reserve-deposit ratio? 1. (A) How will M1 be affected initially? 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. Consider an expansionary open market operation. Suppose the Federal Which of the following is consistent with what Keynes believed? c. engage in open market sales of government securities. 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. \text{Selling expenses} \ldots & 500,000 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? The Federal Reserve cut interest rates on March 3, 2020, in response to COVID-19. The aggregate demand curve should shift rightward. a) Given the required reserve ratio, RR/D=0.10, the excess reserves to deposits ratio, ER/D=0.06, the currency to deposits ratio, Assume that any money lent by a bank is always deposited back in the banking system as a checkable deposit and that the required reserve ratio is 15%. Suppose government spending increases. c) not change. D. $100,000 in checkable-deposit liabilities and $30,000 in reserves. When the Fed decreases the discount rate, banks will a) borrow more from the Fed and lend more to the public. \text{Total uncollectible? 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. Get access to this video and our entire Q&A library, Monetary Policy & The Federal Reserve System. The Fed decides that it wants to expand the money supply by $40 million. Ceteris paribus, if the Fed raises the reserve requirement, then: The lending capacity of the banking system decreases. c. Purchase government bonds on the open market. Then, ceteris paribus, bank reserves , currency in circulation and thus the monetary base will decreases etary base by increasing bank reserves only. b. the interest rate increases c. the Federal Reserve purchases bonds. Expansionary fiscal policy: a) decreases the money supply and raises interest rates. All other trademarks and copyrights are the property of their respective owners. d. the U.S. Treasury. Consider an open market purchase by the Fed of $16 billion of Treasury bonds. U.S. goods are less expensive for Americans so they buy fewer imports and more domestic goods. \end{array} C. treasury bond operations. If the Federal Reserve raises interest rates, it means the money supply starts to deplete. b) an increase in the money supply and a decrease in the interest rate. What are some basic monetary policy tools used by the Fed? The number of deposit dollars the banking system can create from $1 of excess reserves. Suppose that the sellers of government securities redeem these checks drawn on the New York Fed for currency. \text{French import duty} & \text{20\\\%}\\ Currency, transactions accounts, and traveler's checks. B) bond yields will fall C) bond yields will increase as well. Reserve Requirement: Definition, Impact on Economy - The Balance When the Fed buys government bonds, the reserve of the banking system: a) increases, so the money supply increases. Bob, a college student looking for summer work. Consider an expansionary open market operation. The following information is available: Suppose the United States and French tax authorities only allow transfer prices that are between the full manufacturing cost per unit of $175 and a market price of$250, based on comparable imports into France. C. Increase the supply of money. That reduces liquidity and slows economic activity. &\textbf{past due}&\textbf{past due}&\textbf{past due}\\[5pt] State tax on first $3,000: 1.5$ percent. b. engage in open market purchases of government securities. 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 engages in open-market operations. Ceteris paribus if the fed was targeting the quantity - Course Hero We start by assuming that there is no reserve requirement or lending by the Central Bank. d. a decrease in the quantity de. 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 ______. The Fed lowers the federal funds rate. \text{Percent uncollectible}&\text{8\\\%}&\text{17\\\%}&\text{31\\\%}\\ How Does Money Supply Affect Interest Rates? - Investopedia 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. Ceteris paribus, what will occur if the Fed buys bonds through open-market operations? \text{Total per category}&\text{?}&\text{?}&\text{? 1. Which of the following could cause a recession? 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? c. real income increases. The discount rate is the interest rate charged by, the Federal Reserve when it lends money to private banks, Ceteris paribus, if the Fed raises the reserve requirement, then, the lending capacity of the banking system decreases, If the economy is inflationary, the Fed would most likely, encourage banks to provide loans by buying government securities, if the economy is recessionary, the Fed would most likely, encourage banks to provide loans by selling government securities, Alexander Holmes, Barbara Illowsky, Susan Dean, Claudia Bienias Gilbertson, Debra Gentene, Mark W Lehman, Statistical Techniques in Business and Economics, Douglas A. Lind, Samuel A. Wathen, William G. Marchal, David R. Anderson, Dennis J. Sweeney, James J Cochran, Jeffrey D. Camm, Thomas A. Williams, Elegant Linens uses the balance sheet aging method to account for uncollectible debt on Ceteris paribus, if the Fed raises the reserve requirement, then: The lending capacity of the banking system decreases. The buying and selling of government bonds by the Fed to control bank reserves and the money supply are operations known as a. U.S.incometaxrateontheU.S.divisionsoperatingincomeFrenchincometaxrateontheFrenchdivisionsoperatingincomeFrenchimportdutyVariablemanufacturingcostperchainsawFullmanufacturingcostperchainsawSellingprice(netofmarketinganddistributioncosts)inFrance40%45%20%$100$175$300. b. rate of interest decreases. Instead of paying her for this service,the neighbor washes the professor's car. Open market operations c. Printing mo. The financial sector has grown relative to the real economy and become more fragile. Monetary policy can help the Federal Reserve System to protect, influence, and increase benefits to the economy. B. expansionary monetary policy by selling Treasury securities. A change in government spending, a change in taxes, and monetary policy. 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. You'll get a detailed solution from a subject matter expert that helps you learn core concepts. a. contractionary; buying b. expansionary; buying c. expansionary; selling d. contractionary; selling, Suppose the Federal Reserve conducts an open market purchase of $10 million worth of securities from a bank. The difference between price and average total cost multiplied by the quantity sold. C. decrease interest rates. Suppose the banks in the Federal Reserve System have $400 million in transactions accounts and the reserve requirement is 0.10. On March 5 and 6, I surveyed over 500 consumers about their concerns about COVID-19, awareness of the Fed's . View Answer. 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. Sell Treasury bonds, bills, or notes on the bond market. b. }\\ Multiple Choice . If the Federal Reserve increases the money supply, ceteris paribus, the: Money supply is defined as all the currency and other liquid instruments held by banks/individuals in a country's economy in a given time. The Baltimore banks regional federal reserve bank. 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? The monetary base in the economy will increase. C) Total deposits decrease. C. the price level in the economy will rise, thus i. Is it mandatory for banks to buy gov't bonds during open-market operations by the Central Bank? Cause the money supply to decrease, b. B. excess reserves at commercial banks will decrease. The aggregate demand curve should shift rightward. D. The money multiplier decreases. Cause a reduction in the dem. Cbdc"" - \text{Gross Margin}&\text{\hspace{5pt}1,369,250}&\text{\hspace{5pt}1,369,250}\\ If the Federal Reserve increases the nominal supply of money, all else equal: a. the demand for money increases. }\\ d, If the Federal Reserve wants to increase output, it increases A. government spending. If the Fed raises the reserve requirement, the money supply _____. A lower amount of money in the economy makes it more expensive to borrow for banks and consumers.. Suppose the banks in the Federal Reserve System have $100 million in transactions accounts and the reserve requirement is 0.10. 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. a. use open market operations to buy Treasury bills b. use open market operations to sell Treasury bills c. use discount policy to raise the disc. Banks must hold more funds used for loans in reserve. The text describes the theoretical developments of the assignment rules regarding fiscal and monetary policies and the respective roles in macroeconomics stabilisation. The nominal interest rates falls. c-A forecast of a permanent demand increase shifts the investment line . B. 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{Income tax expense} \ldots & 100,000 \\ d. lower reserve requirements. 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. \text{Cost of Goods Sold}&\underline{\text{\hspace{19pt}85,250}}&\underline{\text{\hspace{19pt}85,250}}\\ 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}]. Ceteris paribus, if the reserve requirement is decreased to 0.07, then excess reserves will increase by: $3 million. C.banks' reserves will be reduced. It sells $20 billion in U.S. securities. \text{U.S. income tax rate on the U.S. division's operating income} & \text{40\\\%}\\ \text{Accounts receivable amount}&\text{\$\hspace{1pt}232,000}&\text{\$\hspace{1pt}129,000}&\text{\$\hspace{1pt}100,400}\\ b) increases the money supply and lowers interest rates. c. it borrows money, Consider how the following scenario would affect the money supply and, as a result, interest rates in the economy. \text{Full manufacturing cost per chainsaw} & \text{\$175}\\ b. $$. 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. 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 required reserve ratio is 16%. See Answer Demand; marginal revenue and marginal cost. By the end of the year, over $40 billion of wealth had vanished. A) Increase money supply to decrease interest rates, increase i. Expansionary monetary policy: a) decreases government spending and/or raises taxes. As a result, the money supply will: a. increase by $1 billion. Some terms may not be used. b) Lowering the nominal interest rate. \text{Selling price (net of marketing and distribution costs) in France} & \text{\$300}\\ Which of the following is likely to occur if people reduce their spending because they are worried about an economic downturn, ceteris paribus? 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. b. it will be easier to obtain loans at commercial banks. How can you tell? d) increases the money supply and lowers 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. To see how well you know the information, try the Quiz or Test activity.