B. purchases government bonds to decrease the money supply. d. lower reserve requirements. &\textbf{0-60 days}&\textbf{61-120 days}&\textbf{Over 120 days}\\ What effect will this open market operation have on demand deposits and M1? The information provided should help you work out why you missed a question or three! 23. \begin{array}{lcc} The Fed has most likely reduced the, If the Fed wishes to increase the money supply it can, If the Fed wishes to decrease the money supply it can, The rate of interest banks charge each other for lending reserves is the, 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, consists of seven members appointed by the President of the United States, who together act as the key decision-making entity for monetary policy, Bank reserves in excess of required reserves, Ceteris paribus, if the Fed raises the discount rate, then, the incentive to borrow reserves decreases. B.bond prices will fall, and interest rates will fall. 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. \begin{array}{lcc} Ceteris paribus, if the Fed raises the reserve requirement, then Most studied answer the lending capacity of the banking system decreases. B. If the Fed uses open-market operations, should it buy or sell government securities? Instead of paying her for this service,the neighbor washes the professor's car. The use of money and credit controls to change macroeconomic activity is known as: Monetary policy. When the Fed buys bonds in open-market operations, it _____ the money supply. Using the oversimplified money multiplier, the money suppl, Assume the reserve requirement is 10%. . Interest Rates / Real GDP a. (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. d) increases the money supply and lowers interest rates. a. In terms of pricing, which of the following is not true for a monopolist? c) Increasing the money supply. 3. b. an increase in the demand for money balances. The deposit-creation potential of the banking system is: Suppose the entire banking system has $10,000 in excess reserves and a required reserve ratio of 20 percent. b) increases, so the money supply decreases. If the fed increases the money supply, what will happen to each of the following (other things being equal)? A. 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. A change in the reserve requirement affects: The money multiplier and excess reserves. Which of the following indicates the appropriate change in the U.S. economy? \text{Total uncollectible? Banks must hold more funds used for loans in reserve. Determine whether each of the following, Open market operations are the a. buying and selling of Federal Reserve Notes in the open market. 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. 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! Suppose that the sellers of government securities redeem these checks drawn on the New York Fed for currency. These actions can be classified as expansionary or contractionary, depending on the prevailing market conditions. Suppose the Federal Reserve buys 100 mortgage-backed securities in the open market. Above equilibrium, this results in excess supply. Raise the reserve requirement, raise the discount rate or sell bonds Ceteris paribus, if the Fed reduces the discount rate, then: The incentive to borrow funds increases The use of money and credit controls to change macroeconomic activity is known as: Monetary policy How can you tell? The paper argues that the process of financialization has profoundly changed how capitalist economies operate. 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. If a market basket of goods cost $100 in the base year and $110 in a later year, then average prices have increased by: Keynes and classical economists disagree about whether: Government intervention should be used to correct business cycles. Currency, transactions accounts, and traveler's checks. The Fed sells Treasury bills in the open market b. When the Fed buys government Securities in the open market (a) bank reserves increase (b) bank reserves decline (c) money supply increases but bank reserves remain unchanged (d) money supply declines but bank reserves remain unchanged. When the Federal Reserve increases the discount rate, banks will borrow A. fewer reserves and decrease lending. b. buys bonds from banks, which increases bank reserves. b. means by which the Fed supplies the economy with currency. All rights reserved. A. change the liquidity levels of banks. b. decrease, upward. b. a decrease in the demand for money. \end{array} \text{Accounts receivable amount}&\text{\$\hspace{1pt}263,000}&\text{\$\hspace{1pt}134,200}&\text{\$\hspace{1pt}64,200}\\ The Treasury buys bonds in the open market c. The Fed reduces reserve requirements d. The Treasury sells b. Which of the following could cause a recession? (PDF) Evidence of Bank Market Discipline in Subordinated Debenture C. $120,000 in checkable-deposit liabilities and $32,000 in reserves. The Return of Fiscal Policy and the Euro Area Fiscal Rule C. purchases government bonds to increa, 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 Bank o, Assume that the required reserve ratio is 10%; banks hold no excess reserves, and the public holds all money in the form of currency. a. Suppose the Federal Reserve wishes to use monetary policy to close an expansionary gap. Consider an expansionary open market operation. Suppose the Federal c. They wil, 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. B. 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. We start by assuming that there is no reserve requirement or lending by the Central Bank. If the Federal Reserve System buys government securities from commercial banks and the public: a. the money supply will contract. 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). The Federal Reserve expands the money supply by 5 percent. ceteris paribus, if the fed raises the reserve requirement, then: Terms of Service. 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. c) buying and selling of government securities by the Treasury. 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. lowers inflation but raises unemploym, Assume the demand for money curve is stationary and the Fed increases the money supply. b. money demand increases and the price level decreases. 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? is the rate of interest charged by the Fed when it lends money to private banks, If a private bank lends money to another bank, the interest rate that is charged for the loan is the, Suppose the Fed decreases interest rates by half of a percent. Total costs for the year (summarized alphabetically) were as follows: \text{Total Expenses}&\text{\hspace{12pt}?}&\text{\hspace{12pt}? D. In open market operations, the Fed exchanges cash (money) for non-cash (bonds). The Federal Reserve (or Fed) often executes its policy by selling or buying U.S. government securities in the open market, which in turn influences the quantity of real money balances. c) decreases government spending and/or raises taxes. \text{General and Administrative Expense}&\text{\hspace{12pt}425,000}&\text{\hspace{12pt}425,000}\\ Professor Williams tutors her next-door neighbor's son in economics. The long-term real interest rate _____. Then the bank has excess reserves of: Suppose a bank has $1,000,000 in deposits, a minimum reserve requirement of 15 percent, and bank reserves of $170,000. 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. b. engage in open market purchases of government securities. b. sell government securities. 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. 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. How does it affect the money supply? It creates money, it creates a transactions-account balance for the borrower, and the money supply increases. . \begin{array}{l r} The Federal Reserve carries out open-market operations, purchasing $1 million worth of bonds from banks. b) means by which the Fed acts as the government's banker. True or false? If the Fed increases the money supply, then ceteris 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. B. there is an excess demand for bonds, so those looking to borrow by selling bonds can do so at a lower interest rate. The difference between price and average total cost multiplied by the quantity sold. Decrease the discount rate. 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? 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 d. raise the treasury bill rate. Explain your reasoning. Make sure you say increase or decrease/buy or sell. B. increase the supply of bonds, decrease bond prices, and increase interest rates. d. the U.S. Treasury. 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. If the required reserve ratio is 9%, what is the resulting change in checkable deposits (or the money supply), assuming that there are no cash leakages, Suppose that the reserve requirement for checking deposits is 10 percent and that banks do not hold any excess reserves. How would this affect the money supply? What can be used to shift aggregate demand? The company has marketing divisions throughout the world. \text{U.S. income tax rate on the U.S. division's operating income} & \text{40\\\%}\\ If $200,000 is deposited in the bank, then ceteris paribus: Excess reserves will increase by $170,000. B. 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. d) borrow reserves from the Federal Reserve. \textbf{ELEGANT LINENS}\\ Match the terms with definitions. B) means by which the Fed acts as the government's banker. In addition, the company had six partially completed units in its factory at year-end. Where do you suppose the Fed gets the cash, to do this ? Which transfer prices should the Burton Company select to minimize the total of company import duties and income taxes? If the Fed sells government bonds, this will: A. 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. Now suppose the Fed lowers. Ceteris paribus, if the Fed raises the reserve requirement, then: The money multiplier increases. Interest rates typically rise in a recession because the demand for money increases when real income falls. Martin takes $150 out of his checking account and hides it in his house as cash. Ceteris paribus, if the Fed raises the reserve requirement, then: e The lending capacity of the banking system decreases. b-A rise in corporate tax would shift the investment line outwards. 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. The people who sold these bonds keep all their money in checking accounts. Compute the following for the current year: On October 24, 1929, the stock market crashed. Reserve Requirement: Definition, Impact on Economy - The Balance What is Wave Waters debt ratio on this date? $140,000 in checkable-deposit liabilities and $46,000 in reserves. b. sell bonds, thus driving down the interest rate. "The federal bank can use open market operations as an instrument of monetary policy to manipulate interest rates and control supply of money." b) an increase in the money supply and a decrease in the interest rate. c-A forecast of a permanent demand increase shifts the investment line . 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. 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. Otherwise, click the red Don't know box. Econ Final Flashcards - Cram.com copyright 2003-2023 Homework.Study.com. Figure 14.10c depicts the aggregate investment function of an economy. They will increase. Which of the following is NOT a basic monetary policy tool used by the Fed? a. monetary base b. b. \text{Manufacturing overhead} \ldots & 1,200,000 \\ PDF Practice Short Answer Final Exam Questions - Simon Fraser University B. influence the discount rate. 1. The text describes the theoretical developments of the assignment rules regarding fiscal and monetary policies and the respective roles in macroeconomics stabilisation. U.S.incometaxrateontheU.S.divisionsoperatingincome40%FrenchincometaxrateontheFrenchdivisionsoperatingincome45%Frenchimportduty20%Variablemanufacturingcostperchainsaw$100Fullmanufacturingcostperchainsaw$175Sellingprice(netofmarketinganddistributioncosts)inFrance$300\begin{matrix} C. The nominal interest rate does not change. The marginal revenue of the 11th item is: A monopolist sets price at a point on the _______ curve, corresponding to the rate of output determined by the intersection of ______. 16. b. d. the demand for money. $$ 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? c. it borrows money, Consider how the following scenario would affect the money supply and, as a result, interest rates in the economy. C. a traveler's check. Which of the following is NOT a possible source of last-minute reserves for a private bank? Increase the reserve requirement. 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. D. all of the above. \begin{array}{lcc} The aggregate demand curve should shift rightward. a. Imperfect Market Monitoring and SOES Trading - academia.edu Raise the reserve requirement, increase the discount rate, or . b) borrow more from the Fed and lend less to the public. Your email address is only used to allow you to reset your password. As a result, the money supply will: a. increase by $1 billion. An increase in the money supply and a decrease in the interest rate. Ceteris paribus if bond prices rise then A the Federal reserve must be b. Assume that banks use all funds except required, 13. 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 ______. Generally, when the Federal Reserve lowers interest rates, investment spending [{Blank}] and GDP [{Blank}].
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