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. The four components of aggregate demand are: Consumption, investment, government spending, and net exports. Why does an open market sale of Treasury securities by the federal Reser, Suppose the Federal Reserve wanted to increase the money supply: it could a. Suppose a bank has $50,000 in transactions accounts and a minimum reserve requirement of 10 percent. 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}]. Wave Waters total liabilities on December 31, 2012, are $7,800. \text{Net Income (Loss)}&\text{\hspace{12pt}?}&\text{\hspace{12pt}? What cannot be used to shift aggregate demand? c. real income increases. D.bond prices will rise, and interest rates will fall. C) Total deposits decrease. 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. Changing the reserve requirement is expensive for banks. Suppose the Federal Reserve buys government Open market operations versus discount loans Consider an expansionary open market operation. In terms of pricing, which of the following is not true for a monopolist? The nominal interest rates rises. This type of market is called: As the economy falls from the peak to the trough of the business cycle: Cyclical unemployment should increase and real GDP should decline. Total costs for the year (summarized alphabetically) were as follows: 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. Our experts can answer your tough homework and study questions. Open-market operations occur when the Federal Reserve: a. buys U.S. Treasury bills from the federal government. The text describes the theoretical developments of the assignment rules regarding fiscal and monetary policies and the respective roles in macroeconomics stabilisation. Explain your reasoning. If the Fed buys more bonds from the public, then the money supply will: Increase and the aggregate demand curve will shift to the right. Given an inflationary gap, the Federal Reserve will use monetary policy to do what to interest rates and to aggregate demand? Total reserves increase.B. 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. c. Purchase government bonds on the open market. Conduct open market purchases. d. lend more reserves to commercial banks. 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. then the Fed. An increase in the reserve ratio: a. increases the money multiplier. Raises the cost of borrowing from the Fed, discouraging banks from ma, If the Federal Reserve System buys government securities from commercial banks and the public: A. commercial bank reserves will decline B. commercial bank reserves will be unaffected C. it will be easier to obtain loans at commercial banks D. the money su, Suppose that the Fed purchases from bank A some bonds in the open market and that, before the sale of bonds, bank A had no excess reserves. Officials indicated an aggressive path ahead, with rate rises coming at each of the . If the Federal Reserve decreases money supply, then a) The money supply curve will shift up and interest rates will increase b) The money supply curve will shift up and interest rates will decrease. Assume the Federal Reserve decides to sell $25 billion worth of U.S. Treasury bonds i. a. Total deposits decrease. \text{Total uncollectible? Cause the money supply to increase, c. Not affect the money supply, d. Decrease the money multiplier. In addition, the company had six partially completed units in its factory at year-end. \end{array} Raise reserve requirements 3. Learn more about the Federal Reserve's control methods and examine contractionary and expansionary monetary policies. b. Inflation rate _____. If the Fed sells government bonds, this will: A. A. change the liquidity levels of banks. Assume that banks use all funds except required, 13. It improves aggregate demand, thus increasing the country's GDP. \text{Selling expenses} \ldots & 500,000 26. 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? The reserve ratio is 20%. D) there is no effect on bond yields. \textbf{Year Ended December 31, 2019}\\ 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. D. decrease, Assume that the Federal Reserve establishes a minimum reserve requirement of 12.5%. C. $120,000 in checkable-deposit liabilities and $32,000 in reserves. &\textbf{past due}&\textbf{past due}&\textbf{past due}\\[5pt] All rights reserved. Previous question Next question The Fed approved a 0.25 percentage point rate hike, the first increase since December 2018. c. buys or sells existing U.S. Treasury bills. 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. d. prices to remain constant. Ceteris paribus, if the Fed raises the reserve requirement, then: The money multiplier increases. State tax on first $3,000: 1.5$ percent. C. decrease interest rates. Transcribed Image Text: Question Now we introduce banks that will act as liquidity providers in the economy. d) borrow reserves from the Federal Reserve. \text{Total per category}&\text{?}&\text{?}&\text{? \text{Selling price (net of marketing and distribution costs) in France} & \text{\$300}\\ b. sell bonds, thus driving down the interest rate. Match the terms with definitions. 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. Which of the following functions does the Fed perform? B) means by which the Fed acts as the government's banker. c) borrow reserves from other banks. The fixed monthly cost is $21,000, and the variable cost. All other trademarks and copyrights are the property of their respective owners. Assuming this, how is the Fed likely to respond to fiscal stimulus if the economy is nearing full employment? Could the Federal Reserve continue to carry out open market operations? b) an increase in the money supply and a decrease in the interest rate. Answer: Answer: B. See our D. interest rates will increase. U.S.incometaxrateontheU.S.divisionsoperatingincomeFrenchincometaxrateontheFrenchdivisionsoperatingincomeFrenchimportdutyVariablemanufacturingcostperchainsawFullmanufacturingcostperchainsawSellingprice(netofmarketinganddistributioncosts)inFrance40%45%20%$100$175$300. 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). When the Federal Reserve System buys government securities on the open market: A. the money supply will decrease. The Fed lowers the federal funds rate. The buying and selling of government securities by the Fed is known as: A. open market operations. Ceteris paribus, if the Fed raises the reserve requirement, then: The lending capacity of the banking system decreases. Bob, a college student looking for summer work. c) not change. What types of accounts are listed on the post-closing trial balance? Ceteris paribus, if the reserve requirement is decreased to 0.05, then excess reserves will . &\textbf{0-30 days}&\textbf{31-90 days}&\textbf{Over 90 days}\\ Assume that the currency-deposit ratio is 0.5. Conduct open market sales of government bonds. Q02 . Excess reserves increase. A perfectly competitive firm is a price taker because: It has no control over the market price of its product. 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. Why does an open market purchase of Treasury securities by the Federal Reserve increase bank reserves? 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. 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? 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. 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. Suppose the Fed conducts $10 million open market purchase from Bank A. Acting as fiscal agents for the Federal government. During the last recession (2008-09. Also assume that banks do not hold excess reserves and there is no cash held by the public. b. an increase in the demand for money balances. Change in Excess Reserve = -100000000. C. the price level in the economy will rise, thus i. What impact would this action have on the economy? If there is a recession, the Fed would most likely a. encourage banks to provide loans by. The financial sector has grown relative to the real economy and become more fragile. Make sure to remember your password. 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. 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 ______. $$ Enter the email address you signed up with and we'll email you a reset link. The Federal Reserve has a few main goals with respect to the economy: to promote maximum employment, keep prices stable and ensure moderate long-term interest rates. A. decreases; decreases B. decreases; increases C. increases; decreases D. increases. $$ (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. You can also use your keyboard to move the cards as follows: If you are logged in to your account, this website will remember which cards you know and don't know so that they b. sell government securities. A. 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. 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). $$ If the Fed sells $1 million of government bonds, what is the effect on the economy s reserves and money supply? c. Decrease interest rates. Multiple . c) decreases government spending and/or raises taxes. The Board of Governors has ___ members,and they are appointed for ___ year terms. c. has an expansionary effect on the money supply. The monetary base in the economy will increase. Over the 30-year life of the. Now suppose the Fed lowers. Any import duty paid to the French authorities is a deductible expense for calculating French income taxes. A) increases; supply. The Federal Reserve conducts open market operations when it wants to [{Blank}]? Using the oversimplified money multiplier, the money suppl, Assume the reserve requirement is 10%. The creation of a Federal Reserve System was recommended by. 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. it will be easier to obtain loans at commercial banks. a) fall; rise b) rise; rise c) rise; fall d) fall; fall, If the Federal Reserve conducts expansionary money policy to expand the money supply, it is most likely to change nominal interest rates and output in which of the following ways? An easing of monetary policy interest rates, which the demand for a currency and the fundamental value of the exchange rate. d) All of the above. \begin{array}{lcc} Use these flashcards to help memorize information. b. it buys Treasury securities, which decreases the money supply. To manage earnings more favorably, Elegant Linens considers changing the past-due categories as follows. d. Conduct open market sales. 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 money multiplier is equal to ______ and the reserve ratio is equal to _____%. C) Excess reserves increase. 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? An open market operation decreases the money supply when the Federal Reserve a. sells bonds to banks, which increases bank reserves. C. The nominal interest rate does not change. If the Fed conducts an open-market sale, bank reserves _ and the money supply is likely to _. Suppose the banks in the Federal Reserve System have $400 million in transactions accounts and the reserve requirement is 0.10. 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.. Suppose the Federal Reserve buys government securities from commercial banks. \text{Bad Debt Expense}&\text{\hspace{12pt}?}&\text{\hspace{12pt}? Key Points. The number and relative size of firms in an industry. They will remain unchanged. B) Total reserves increase D) The money multiplier decreases. 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)increases; increases b)increases; decreases c)decreases; increase, 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). C. increase by $290 million. The aggregate demand curve should shift rightward. 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. If the Fed sells $5 million worth of government securities to the public, what will be the change in the money supply? c-A forecast of a permanent demand increase shifts the investment line . 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. Toby Vail. D) Required reserves decrease. If the price of computers falls during a period when the average price level remains constant, which of the following has occurred? d. decrease the discount rate. What is meant by open market operations? The Federal Reserve carries out open-market operations, purchasing $1 million worth of bonds from banks. If the fed increases the money supply, what will happen to each of the following (other things being equal)? b. It is considered to be less efficient for an economy than the use of money. c. the money supply and the price level would increase. C. increase by $50 million. B) bond yields will fall C) bond yields will increase as well. a) 0.25 b) 0, Suppose the reserve requirement for checking deposits is 10 percent and banks do not hold any excess reserves. \textbf{ELEGANT LINENS}\\ 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? Savings accounts and certificates of deposit are called. 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. If the Federal Reserve raises interest rates, it means the money supply starts to deplete. Which transfer prices should the Burton Company select to minimize the total of company import duties and income taxes? b) running the check-clearing process. a. increase the supply of money by buying bonds b. increase the supply of money by selling bonds c. increase the demand for money by buying bonds d. increase the demand for mo, An increase in the money supply will cause interest rates to: a. rise b. fall c. remain unchanged. An open market operation is ____?A. B. expansionary monetary policy by selling Treasury securities. The Treasury buys bonds in the open market c. The Fed reduces reserve requirements d. The Treasury sells b. c. an increase in the quantity of money demanded. b. a decrease in the demand for money. \begin{array}{c} 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. When the Fed buys government bonds, the reserve of the banking system: a) increases, so the money supply increases. Should the Fed increase or decrease the money supply? What effect will this open market operation have on demand deposits and M1? 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. Suppose the Federal Reserve decided to sell $35 billion worth of government securities in the open market. \text{Variable manufacturing cost per chainsaw} & \text{\$100}\\ Decrease in the federal funds rate B. The answer is b. rate of interest decreases. Ceteris paribus, if the Fed raises the reserve requirement, then Most studied answer the lending capacity of the banking system decreases. Consider an expansionary open market operation. 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. 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? 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. 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? The difference between price and average total cost multiplied by the quantity sold. Cause an excess demand for money and a decrease in the rate of interest. Figure 14.10c depicts the aggregate investment function of an economy. b) increase. 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. If the economy is currently in monetary equilibrium, an increase in the money supply will a. Which of the following lends reserves to private banks? While those goals were articulated in 1977, 2 the approach and tools used to implement those objectives have changed over time. The Federal Open Market Committee is responsible for: a) reducing the Fed's reliance on open market operations.
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