Bank A with total deposits of $100 million isfully loaned up. Suppose the U.S. government paid off all its debt. 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? b. Money demand c. Investment spending d. Aggregate demand e. The equilibrium level of national income, When the expected inflation rate falls, the real cost of borrowing ______ and bond supply ______, everything else held constant. \text{Selling expenses} \ldots & 500,000 \end{matrix} \textbf{Comparative Income Statements}\\ All other trademarks and copyrights are the property of their respective owners. Decrease in the federal funds rate B. FROM THE STUDY SET When you've placed seven or more cards in the Don't know box, click "retry" to try those cards again. C. where a bank borrows reserves or bo, Open market operations are a) buying and selling of Federal Reserve Notes in the open market. D. Decrease the supply of money. B. decreases the bond price and decreases the interest rate. Multiple Choice . Ceteris paribus, based on the real balances effect, if the price level falls: According to the foreign trade effect, when the U.S. price level decreases, U.S. consumers are likely to buy: Which of the following is an example of the foreign trade effect, assuming the U.S. price level decreases? As a result, the money supply will: a. increase by $1 billion. Suppose the Federal Reserve Bank buys Treasury securities. The sale of bonds to the Fed by banks B. Explain your reasoning. If the fed increases the money supply, what will happen to each of the following (other things being equal)? Decrease the discount rate. 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. The new reserve requirement exemption amount and low reserve tranche will be effective for all depository institutions beginning January 1, 2022. \text{Direct materials used} \ldots & \$ 750,000\\ The aggregate demand curve should shift rightward. Ceteris paribus, if the reserve requirement is decreased to 0.05, then excess reserves will . d) increases the money supply and lowers interest rates. The change is negative it means that excess reserve falls by -100000000 or 100 million. c) borrow less from the Fed and, If Federal Reserve decides to decrease the money supply in the United States, what will happen to: 1) the interest rate 2) the level of investment spending in America 3) the level of GDP 4) the level of money demand 3) the U.S interest rate 4) the level o. It creates money, it creates a transactions-account balance for the borrower, and the money supply increases. If the Federal Reserve increases the discount rate: a. the federal funds rate must decrease. What is meant by open market operations? c. means by which the Fed acts as the government's banker. The Burton Company manufactures chainsaws at its plant in Sandusky, Ohio. c. has an expansionary effect on the money supply. c. increase, down. d. The Federal Reserve sells bonds on the open market. An increase in the money supply and an increase in the int. the process of selling Fed-issued IOUs between banks. c. the money supply is likely to increase. Cost of finished goods manufactured. Suppose that the sellers of government securities redeem these checks drawn on the New York Fed for currency. Suppose the Federal Reserve undertakes an open market purchase of government bonds. If the Federal Reserve System buys government securities from commercial banks and the public: a. the money supply will contract. Privacy Policy and Personal exemptions of$1,500. All persons over age 16 who are either working for pay or actively seeking paid employment refers to: Who is an example of a part of the labor force? If $200,000 is deposited in the bank, then ceteris paribus: Excess reserves will increase by $170,000. The sale of bonds to the Fed by the public C. Increases in banks' excess reserves D. Increases in. D. change the level of reserves it holds for banks. D. Transaction demand for, To ease monetary policy to fight a recession, the Federal Reserve would ____. a. (ii) instructs the New York Fed to sell government securities in the foreign exchange market. C.banks' reserves will be reduced. C. $120,000 in checkable-deposit liabilities and $32,000 in reserves. C. a traveler's check. \text{Variable manufacturing cost per chainsaw} & \text{\$100}\\ are in the same box the next time you log in. B. the Fed is concerned about high unemployment rates. 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. Fiscal policy should be used to shift the aggregate demand curve. Annual gross pay of $18,200. \text{Total per category}&\text{?}&\text{?}&\text{? The required reserve ratio is 16%. lower reserve requirements.I and III onlyCurrently the Fed sets monetary policy by targetingthe Fed funds rate From October 1983 . How would this affect the money supply? Ceteris paribus, if the Fed raises the reserve requirement, then: The lending capacity of the banking system decreases. The Board of Governors has ___ members,and they are appointed for ___ year terms. If not, how will the Central Bank control inflation? b) increases the money supply and lowers interest rates. The answer is b. rate of interest decreases. Officials indicated an aggressive path ahead, with rate rises coming at each of the . Total reserves increase.B. (a) increases because the resulting increase in the interest rate leads to a decrease in investment (b) increases because the resulting decrease in the interest rate leads to an increase in investment (, The Fed decreases the quantity of money. 3. D) Required reserves decrease. B. Some terms may not be used. 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. If the banking system has a required reserve ratio of 20 percent, then the money multiplier is: It is more likely to occur if people lose faith in a nation's currency. We develop a model of price formation in a dealership market where monitoring of the information flow requires costly effort. Which of the following lends reserves to private banks? Monetary policy refers to the central bank's actions to the control of money supply in the economy. When you need a break, try one of the other activities listed below the flashcards like Matching, Snowman, or Hungry Bug. \end{array} The shape of the curve determines the impact of an aggregate demand shift on prices and output. 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. b. it will be easier to obtain loans at commercial banks. c. buys or sells existing U.S. Treasury bills. Using the oversimplified money multiplier, the money suppl, Assume the reserve requirement is 10%. d. lend more reserves to commercial banks. Fill in either rise/fall or increase/decrease. d. prices to remain constant. \text{Cost of Goods Sold}&\underline{\text{\hspace{19pt}85,250}}&\underline{\text{\hspace{19pt}85,250}}\\ The VOC was also the first recorded joint-stock company to get a fixed capital stock. Compute the following for the current year: 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. \text{U.S. income tax rate on the U.S. division's operating income} & \text{40\\\%}\\ 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. When the Fed decreases the discount rate, banks will a) borrow more from the Fed and lend more to the public. a. monetary base b. Answer the question based on the following balance sheet for the First National Bank. Aggregate supply will increase or shift to the right. In addition, the company had six partially completed units in its factory at year-end. Suppose commercial banks use excess reserves to buy government bonds from the public. Which of the following indicates the appropriate change in the U.S. economy? c. Decrease interest rates. c. Purchase government bonds on the open market. The Fed lowers the federal funds rate. 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. Any import duty paid to the French authorities is a deductible expense for calculating French income taxes. Which of the following is likely to cause a leftward shift in the aggregate supply curve, ceteris paribus? 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. What types of accounts are listed on the post-closing trial balance? If the Federal Reserve would like to increase the money supply, it can the reserve ratio, the discount rate, or government securities in open market operations. What effect will this open market operation have on demand deposits and M1? 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. The Great Depression was caused by a steep decline in the money supply when the stock market crashed in 1929. A. decrease, downward B. decrease, upward C. increase, downward D. increase, If inflation begins to rise rapidly, which step is the Federal Reserve likely to take? b. the interest rate rises and this stimulates consumption spending. 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. 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. View Answer. Could the Federal Reserve continue to carry out open market operations? C. decreases, 1. Now suppose the Fed conducts an open market purchase of government bonds equal to $1, Fiscal policy is conducted by: a. 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. 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 ______. 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. Suppose the Federal Reserve purchases mortgage-backed securities (MBS). A perfectly competitive firm is a price taker because: It has no control over the market price of its product. B. federal bond operations. It forces them to modify their procedures. Decrease by $100, Suppose the Federal Reserve buys 3 treasury bonds from the public. a. increases; rises b. does not change; falls c. decreases; rises d. decreases; falls e. increases; falls. Bob, a college student looking for summer work. 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. It transfers money from spenders to savers. The U.S. Treasury c. The U.S. Mint d. The federal government And involves: a. Quantitative easing b. View Answer. If the Fed decreases the money supply, GDP ________. 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. Increase / Decrease b. 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. Suppose the banks in the Federal Reserve System have $100 million in transactions accounts and the reserve requirement is 0.10. a. State tax on first $3,000: 1.5$ percent. \text{Accounts receivable amount}&\text{\$\hspace{1pt}232,000}&\text{\$\hspace{1pt}129,000}&\text{\$\hspace{1pt}100,400}\\ U.S.incometaxrateontheU.S.divisionsoperatingincome40%FrenchincometaxrateontheFrenchdivisionsoperatingincome45%Frenchimportduty20%Variablemanufacturingcostperchainsaw$100Fullmanufacturingcostperchainsaw$175Sellingprice(netofmarketinganddistributioncosts)inFrance$300\begin{matrix} Assume that the Fed increases the monetary base by $1 billion when the reserve requirement is 1/7. The lender who forecloses will then end up with about $40,000. In order to increase sales by one item per month, the monopolist must lower the price of its software by $1 to $49. This is an example of which type of unemployment? A combination of flexible rules and limited discretion. Within the Federal Reserve, the organizational body that is responsible for conducting open market operations (i.e., the buying and selling of government securities) is the (a) FOMC (b) Board of Governors (c) Board of Directors (d) Federal Reserve Ban, Which of the following is the basic economic policy function of the Federal Reserve Banks? C. money supply. The lending capacity of the banking system decreases. 1. C. Increase the supply of money. 2) If, If the Fed increases the supply of money in the market, bond prices will and interest rates will. B. expansionary monetary policy by selling Treasury securities. Suppose a bank has $50,000 in transactions accounts and a minimum reserve requirement of 10 percent. The money supply decreases. 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? Suppose the banks in the Federal Reserve System have $400 million in transactions accounts and the reserve requirement is 0.10. In the short run, the quantity of money demanded [{Blank}] and the nominal interest rate [{Blank}]. Wave Waters total liabilities on December 31, 2012, are $7,800. Suppose government spending increases. When aggregate demand equals aggregate supply at the average price level. C) buying and selling of government s. In carrying out open market operations, the Federal Reserve usually buys and sells U.S. Treasury securities. Patricia's nominal annual income in 2009 was $60,000. &\textbf{past due}&\textbf{past due}&\textbf{past due}\\[5pt] $$ 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? Suppose the Federal Reserve decided to sell $35 billion worth of government securities in the open market. Interest Rates / Real GDP a. The key decision maker for U.S. monetary policy is: Ceteris paribus, if the Fed raises the reserve requirement, then: e The lending capacity of the banking system decreases. The number of deposit dollars the banking system can create from $1 of excess reserves. "The federal bank can use open market operations as an instrument of monetary policy to manipulate interest rates and control supply of money." 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.. Also assume the Federal Reserve conducts an Open Market Operations purchase of U.S. Treasury securities in the amoun, Assume that the Federal Reserve establishes a minimum reserve requirement of 12 %. }\\ If the Fed conducts an open-market sale, bank reserves _ and the money supply is likely to _. If they have it, does that mean it exists already ? 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. b. In terms of pricing, which of the following is not true for a monopolist? \begin{array}{lcc} When the Federal Reserve System buys government securities on the open market: A. the money supply will decrease. \text{Full manufacturing cost per chainsaw} & \text{\$175}\\ Currency circulation in the economy will increase since the non-bank public will have sold their securities. C. decisions by the Fed to raise or lower interest rates. A lower amount of money in the economy makes it more expensive to borrow for banks and consumers.. 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? Government bond operations. 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. \text{Expenses:}\\ Its policymakers are welcoming the recent slowdown in price increases, and the disinflation trend gives . \begin{array}{l r} An increase in the money supply and a decrease in the interest rate. In the money market, an excess demand of money will: A. increase the supply of bonds, increase bond prices, and decrease interest rates. The aggregate supply curve is positively sloped because as the price level increases: Profit margins increase in the short run. \text{Net Income (Loss)}&\text{\hspace{12pt}?}&\text{\hspace{12pt}? Changing the reserve requirement is expensive for banks. If the Fed sells government bonds, this will: A. B) means by which the Fed acts as the government's banker. Suppose the Federal Reserve engages in open-market operations. \end{array} Name the three tools of monetary policy that the Federal Reserve System can do to combat inflation. d. Conduct open market sales. What is the impact of the purchase on the bank from which the Fed bought the securities? B. buy bonds lowering the price of bonds and driving up the interest rates. If the Fed sells $1 million of government bonds, what is the effect on the economy s reserves and money supply? Which of the following could cause a recession? 2. Suppose that the sellers of government securities deposit the checks drawn on the New York Fed into their bank account. D. All of the above. The nominal interest rates rises. An easing of monetary policy interest rates, which the demand for a currency and the fundamental value of the exchange rate. Should the Fed increase or decrease the money supply? \text{French import duty} & \text{20\\\%}\\ When the Federal Reserve Bank buys US Treasury bonds on the open market, then _______. Road Warrior Corporation began operations early in the current year, building luxury motor homes. Expansionary fiscal policy is when a. the government lowers spending and raises taxes. If the Federal Reserve wants to decrease the money supply, it should: a. In order to decrease the money supply, the Fed can. b. buys or sells foreign currency. See Answer The buying and selling of government bonds by the Fed to control bank reserves and the money supply are operations known as a. The following is the past-due category information for outstanding receivable debt for 2019. c) increases government spending and/or cuts taxes. 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. a. increase the supply of bonds, thus driving up the interest rate. c. an increase in the demand for bonds and a rise in bond prices. Acting as fiscal agents for the Federal government. Inflation rate _____. Perform open market purchases of securities. 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. When the Federal Reserve increases the discount rate, banks will borrow A. fewer reserves and decrease lending. Which of the following is NOT a possible source of last-minute reserves for a private bank? B. 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. Savings accounts and certificates of deposit are called. The difference between equilibrium output and full-employment output. b. prices to increase by 3%. The French import duty is charged on the price at which the product is transferred into France. 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. 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? Hence C is the correct option. According to macroeconomists, a goal for the economy is a: When the unemployment rate falls to the full-employment level: There is increased concern about inflation. copyright 2003-2023 Homework.Study.com. a. increase, increase, sell b. increase, increase, buy c. decrease, decrease, buy d. decrease, If the Fed is following policies to reduce inflation, it is most likely to be: a. lowering interest rates b. raising the money supply c. lowering the money supply d. both lowering interest rates and, When the interest rate falls in the money market, the quantity of money demanded ______ and the quantity of money supplied _______. Examples of money are: A. a check. 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. d. raise the treasury bill rate. 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. A) increases; supply. \text{Total per category}&\text{?}&\text{?}&\text{? Ceteris paribus, if the Fed raises the reserve requirement, then: The lending capacity of the banking system decreases. The Federal Reserve Bank b. c. reduce the reserve requirement. At what price per share did Wave Water issue common stock during 2012? b. See our What is Wave Waters debt ratio on this date? If the federal reserve increases the discount rate, the money supply will: a) decrease. B. decrease by $200 million. a. 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. Name the three tools of monetary policy that the Federal Reserve System can do to combat unemployment/recession. c) Increasing the money supply. Change in Excess Reserve = -100000000. \text{Direct labor} \ldots & 800,000\\ The Federal Reserve carries out open-market operations, purchasing $1 million worth of bonds from banks. Check all that apply. $$. Total deposits decrease. a. decrease, downward. The equilibrium price level and equilibrium output should both increase. $$ Ceteris paribus, if the Fed reduces the reserve requirement ratio, then: A) The lending capacity of the banking system increases. Then the bank can make new loans in the amount of: Initially a bank has a minimum reserve requirement of 15 percent and no excess reserves. Look at the large card and try to recall what is on the other side. 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. b. rate of interest decreases. Price charged is always less than marginal revenue. Instead of paying her for this service,the neighbor washes the professor's car. 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 ______. 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 B. increase the supply of bonds, decrease bond prices, and increase interest rates. d. sells U.S. Treasury bills to the federal government. If the Fed wants to increase the money supply through an open market operation, it will a. purchase government securities. c. prices to increase by 2%. 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) 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. Keynes viewed the economy as inherently unstable and suggested that during a recession policy makers should: Cut taxes and/or increase government spending. d) increases government spending and/or cuts taxes. 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 nominal interest rates falls. Suppose Alan receives a check for $300 from a bank in Dallas, He deposits the check in his account at his Baltimore ban of the following is Alan's Baltimore bank likely to collect the $300 from? If market interest rates rise, the selling price of existing bonds in the market will, ceteris paribus, . The money multiplier is equal to ______ and the reserve ratio is equal to _____%. \textbf{Year Ended December 31, 2019}\\ A. b) borrow more from the Fed and lend less to the public. . If the Fed sells $1 million of government bonds, what is the effect on the economy's reserves and money supply? a. decrease b. increase c. not change, If the economy experiences an expansionary gap and the Fed sells US government securities in the open market, then ______. Which of the following indicates the appropriate change in the U.S. economy after government intervention? 2. 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. d) Lowering the real interest rate. Of these, 43 were sold for $\$ 105,000$ each and two remain in finished goods inventory. Make sure you say increase or decrease/buy or sell. The Fed lowers the federal funds rate.
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