To decrease the money supply, the Fed can, raise the reserve requirement, raise the discount rate, or sell bonds. PDF AP Macroeconomics Unit 4 Practice Quiz #2 KEY 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. 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. 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. What effect will this open market operation have on demand deposits and M1? The text describes the theoretical developments of the assignment rules regarding fiscal and monetary policies and the respective roles in macroeconomics stabilisation. Inflation rate _____. D. $100,000 in checkable-deposit liabilities and $30,000 in reserves. Buying securities in open market operations is a tool used by the Federal Reserve to increase the money supply in the economy, thus encouraging economic growth. b. the Federal Reserve buys bonds on the open market. Suppose that the sellers of government securities redeem these checks drawn on the New York Fed for currency. 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. This causes excess reserves to, the money supply to, and the money multiplier to. Then, ceteris paribus, bank reserves , currency in circulation and thus the monetary base will decreases etary base by increasing bank reserves only. 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? Q01 . 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. Keynes viewed the economy as inherently unstable and suggested that during a recession policy makers should: Cut taxes and/or increase government spending. b. 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 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? Patricia's nominal annual income in 2009 was $60,000. a. increase the supply of bonds, thus driving up the interest rate. Free . Aggregate supply will increase or shift to the right. 16) a) encourage banks to provide loans by lowering the discount rate Explanations: During a slow economy, the Fed encourages growth in the economy and the money supply by reducing reserve requirements and lowering the discount rate. Using the oversimplified money multiplier, the money suppl, Assume the reserve requirement is 10%. C. decreases, 1. Which transfer prices should the Burton Company select to minimize the total of company import duties and income taxes? 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. Here are the answers with discussion for yesterday's quiz. A) increases; increases B) increases; decreases C) decreases; increases D) decreases; decreases, If the Federal Reserve was concerned about the "crowding-out" effect, they could engage in: A. expansionary monetary policy by lowering the discount rate. If the Fed sells $29 million worth of government securities in an open market operation, then the money supply can: A. increase by $2.9 million. b. will cause banks to make more loans. The paper argues that the process of financialization has profoundly changed how capitalist economies operate. By raising or lowering the _______, the Fed changes the cost of money for banks, which impacts the incentive to borrow reserves. \textbf{Year Ended December 31, 2019}\\ The capital account surplus will increase. Total reserves increase.B. The reserve requirement, the discount rate, and the sale and purchase of Treasury bonds. c. the interest rate rises and this. This is an example of which type of unemployment? U.S.incometaxrateontheU.S.divisionsoperatingincome40%FrenchincometaxrateontheFrenchdivisionsoperatingincome45%Frenchimportduty20%Variablemanufacturingcostperchainsaw$100Fullmanufacturingcostperchainsaw$175Sellingprice(netofmarketinganddistributioncosts)inFrance$300\begin{matrix} C. decisions by the Fed to raise or lower interest rates. Chapter 14 MCQs.docx - Chapter 14 1. a) b) c) d) Which of An increase in the money supply and a decrease in the interest rate. Holding the deposits or reserves of commercial banks. b. The creation of a Federal Reserve System was recommended by. \end{matrix} The sale of bonds to the Fed by the public C. Increases in banks' excess reserves D. Increases in. As a result, the money supply will: a. increase by $1 billion. Monetary Policy quiz Flashcards | Quizlet Which of the following lends reserves to private banks? e. raise the reserve requirement. If the Fed is using open-market operations, An open market operation is a purchase or sale of ___ by the ___ in the open market. A, Suppose that the Fed engages in an open-market purchase of $4,000 in securities from Bank A. Raise the reserve requirement, increase the discount rate, or . }\\ Consider an expansionary open market operation. Suppose the Federal Sell Treasury bonds, bills, or notes on the bond market. d) means by which the Fed supplies the, Suppose the Fed wishes to use monetary policy to close an expansionary gap. \end{array} 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. Answer: D. 15. Excess reserves increase. B) means by which the Fed acts as the government's banker. c. an increase in the demand for bonds and a rise in bond prices. d. the U.S. Treasury. 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. Suppose a bank has $50,000 in transactions accounts and a minimum reserve requirement of 10 percent. $$ Bank A with total deposits of $100 million isfully loaned up. The U.S. Treasury c. The U.S. Mint d. The federal government And involves: a. Quantitative easing b. Biagio Bossone. What is Wave Waters debt ratio on this date? What are some basic monetary policy tools used by the Fed? &\textbf{past due}&\textbf{past due}&\textbf{past due}\\[5pt] Figure 14.10c depicts the aggregate investment function of an economy. Tax on amount over $3,000 :3 percent. b) running the check-clearing process. If Bank A and all the other banks use reserves to purchase only securities, what will happen to deposits in the banking system and how much does it expand? Ceteris paribus, if the Fed reduces the reserve requirement ratio, then: A) The lending capacity of the banking system increases. Cause a reduction in the dem. At what price per share did Wave Water issue common stock during 2012? a. mortgages; Bank of America b. government securities; New York Fed c. government securities; Federal Reserve Bank of Florida d. Mortgages; Federal Reserve. b. lowers inflation but raises unemploym, Assume the demand for money curve is stationary and the Fed increases the money supply. The aggregate demand curve should shift rightward. According to the monetarist view, the aggregate supply curve is: Vertical at the natural rate of unemployment. 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. Raise discount rate 2. 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? When the Fed buys bonds in open-market operations, it _____ the money supply. a) decrease, downward b) decrease, upward c) inc. D. decrease, Assume that the Federal Reserve establishes a minimum reserve requirement of 12.5%. Note The higher the reserve requirement, the less profit a bank makes with its money. Raise reserve requirements 3. It needs to balance economic growth. a. monetary base b. Ceteris paribus if the fed raises the reserve - Course Hero d) All of the above. c) an open market sale. B. influence the discount rate. Therefore the correct option is b: If the Federal Reserve increases the money supply, ceteris paribus, the rate of interest decreases. D. The collectio. b. &\textbf{0-30 days}&\textbf{31-90 days}&\textbf{Over 90 days}\\ \text{Direct materials used} \ldots & \$ 750,000\\ When the sellers deposit their checks in their bank accounts, their reserves will increase due to the deposits made. Assuming this, how is the Fed likely to respond to fiscal stimulus if the economy is nearing full employment? b. the same thing as the long-term growth rate of the money supply. c) not change. What happens to interest rates? Use a balance sheet to show the impact on the bank's loans. Ceteris paribus, if the reserve requirement is decreased to 0.07, then excess reserves will increase by: $3 million. 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. D) there is no effect on bond yields. a. increases; rises b. does not change; falls c. decreases; rises d. decreases; falls e. increases; falls. See Answer Ceteris paribus, if the Fed raised the required reserve ratio: Expert Answer Explain your reasoning. \text{Total Expenses}&\text{\hspace{12pt}?}&\text{\hspace{12pt}? 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. c. means by which the Fed acts as the government's banker. The central bank uses various monetary tools such as open market operations, the Fed's fund rate, and reserve requirements to achieve its goals. C. money supply. On October 24, 1929, the stock market crashed. Open market operations c. Printing mo. The price level to decrease c. Unemployment to decrease d. Investment to decrease. In the money market, an excess demand of money will: A. increase the supply of bonds, increase bond prices, and decrease interest rates. The Fed decides that it wants to expand the money supply by $40 million. \text{Expenses:}\\ If the Fed wants to increase the money supply through an open market operation, it will a. purchase government securities. In order to increase sales by one item per month, the monopolist must lower the price of its software by $1 to $49. Eco 120 chapter 14 Flashcards | Quizlet A. decreases; decreases B. decreases; increases C. increases; decreases D. increases. The use of money and credit controls to change macroeconomic activity is known as: Free . C. the price level in the economy will rise, thus i. 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 ____. Otherwise, click the red Don't know box. It also raises the reserve ratio. 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. The Fed Raises Rates a Quarter Point and Signals More Ahead Enter the effect of this open-market operation on Bank A's T-account, assuming that the proceeds from the p. If the Federal Reserve wants to decrease the money supply, it should: A. conduct open market purchases. 1. [Solved] Ceteris Paribus,if the Fed Raises the Reserve Requirement,then 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 long-term real interest rate _____. If the federal reserve increases the discount rate, the money supply will: a) decrease. Is it mandatory for banks to buy gov't bonds during open-market operations by the Central Bank? Match the terms with definitions. "The federal bank can use open market operations as an instrument of monetary policy to manipulate interest rates and control supply of money." the process of selling Fed-issued IOUs between banks. d. The Federal Reserve sells bonds on the open market. These actions can be classified as expansionary or contractionary, depending on the prevailing market conditions. 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. B) Total reserves increase D) The money multiplier decreases. 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. (ii) instructs the New York Fed to sell government securities in the foreign exchange market. If the economy is currently in monetary equilibrium, an increase in the money supply will a. Which action would the federal reserve rate take to expand the money supply and lower the equilibrium interest rate? An expansionary fiscal policy is when a. the government lowers spending and raises taxes. c. the money supply divided by nominal GDP. 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? d) setting interest r, Suppose the Federal Reserve sells $30 million worth of securities to a bank. Suppose the economy is initially experiencing an inflationary gap. Currency, transactions accounts, and traveler's checks. They will remain unchanged. Change in Excess Reserve = -100000000. Generally, the central bank. \text{French import duty} & \text{20\\\%}\\ B) The lending capacity of the banking system decreases. b. Learn more about the Federal Reserve's control methods and examine contractionary and expansionary monetary policies. Answer: Answer: B. A Burton marketing division in Lille, France, imports 200,000 chainsaws annually from the United States. Suppose the Federal Reserve buys government securities from the non-bank public. If the price of computers falls during a period when the average price level remains constant, which of the following has occurred? Why the Federal Reserve raises interest rates to combat inflation - CNBC Professor Williams tutors her next-door neighbor's son in economics. Assume that the reserve requirement is 20%. b. the price level increases. Fill in either rise/fall or increase/decrease. The Federal Reserve (the Fed), the central bank of the United States, has a Congressional mandate to promote maximum employment and price stability. For best results enter two or more search terms. Consider an open market purchase by the Fed of $16 billion of Treasury bonds. Ceteris paribus, if the Fed reduces the reserve requirement, then: A. This problem has been solved! The result is that people _____. The result is that people a. increase the supply of bonds, thus driving up the interest rate. b. it buys Treasury securities, which decreases the money supply. Find the taxable wages. 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. 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. Your email address is only used to allow you to reset your password. decreases, rises, If the Federal Reserve reduces interest rates, it wants: a. A stock person who is laid off by a department store because retail sales across the country have decreased is _______ unemployed. U.S. goods are less expensive for Americans so they buy fewer imports and more domestic goods. Suppose further that the required reserve, Explain briefly: a. The fixed monthly cost is $21,000, and the variable cost. If the Fed decreases the money supply, GDP ________. The equilibrium price level and equilibrium output should both increase. Which of the following is NOT a possible source of last-minute reserves for a private bank? See our 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. Price falls to the level of minimum average total cost. Fill in either rise/fall or increase/decrease. Suppose the Federal Reserve undertakes an open market purchase of government bonds. 2. $$ 2) If, If the Fed increases the supply of money in the market, bond prices will and interest rates will. Use these flashcards to help memorize information. Then click the card to flip it. Ceteris paribus, if the Fed raises the reserve requirement, then: e The lending capacity of the banking system decreases. Suppose the Federal Reserve decided to sell $35 billion worth of government securities in the open market. b. increase the supply of bonds, thus driving down the interest rate. If the Fed uses open-market operations, should it buy or sell government securities? 3 . b. sell government securities. A. B. taxes. Suppose the Federal Reserve purchases mortgage-backed securities (MBS). d. commercial bank, Assume all money is held in the form of currency. b. decrease, upward. Privacy Policy and B. there is an excess demand for bonds, so those looking to borrow by selling bonds can do so at a lower interest rate. Solved I.The use of money and credit controls to change - Chegg 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. If the Fed raises the reserve requirement, the money supply _____. Key Points. You'll get a detailed solution from a subject matter expert that helps you learn core concepts. How would this affect the money supply? The Board of Governors has___ members, and they are appointed for ___year terms. Hence C is the correct option. 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. Increase / Decrease b. 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) remains unchanged; decreases B) increases; decreases C) decreases; increases D) increases; remains unchanged E) rem, A decrease in the discount rate: a. Decreases the money supply, b. B. An open market operation is ____?A. It sells $20 billion in U.S. securities. You'll get a detailed solution from a subject matter expert that helps you learn core concepts. 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. Now suppose the. B. purchases government bonds to decrease the money supply. 16. The shape of the curve determines the impact of an aggregate demand shift on prices and output. Remember that the transfer price must be between the full manufacturing cost per unit of $175 and the market price of$250 of comparable imports into France. 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. Of these, 43 were sold for $\$ 105,000$ each and two remain in finished goods inventory. When you've placed seven or more cards in the Don't know box, click "retry" to try those cards again. III. a. \begin{array}{lcc} 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. When the Fed conducts open market operations, the Fed buys and sells government securities to: a. the private sector. Decrease by $100, Suppose the Federal Reserve buys 3 treasury bonds from the public. a. d) decreases, so the money supply decreases. Financialization and Finance-Driven Capitalism Answer the question based on the following balance sheet for the First National Bank. a. c. buys or sells existing U.S. Treasury bills. \text{Total uncollectible? \text{Total uncollectible? When the economy overheats, the government sometimes cools it down with higher taxes, spending reductions, and less money. Answer: Answer: B. B.bond prices will fall, and interest rates will fall. 1015. The result is imperfect monitoring, which creates profit opportunities for speculators, who do not act as dealers but simply 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). 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. Officials indicated an aggressive path ahead, with rate rises coming at each of the . Terms of Service. Assume central bank money (H) is initially equal to $100 million. Transcribed Image Text: Question Now we introduce banks that will act as liquidity providers in the economy. Chapter 14 Assignment Flashcards | Quizlet A change in the reserve requirement affects a the B. decrease by $200 million. Increase; depreciate c. Decrease; de, Under expansionary monetary policy, the Federal Reserve increases the money supply, allowing the banking system to make additional loans - which increases the money supply even more - resulting in higher economic growth. When the Fed decreases the discount rate, banks will a) borrow more from the Fed and lend more to the public. The Federal Reserve expands the money supply by 5 percent. b) increases, so the money supply decreases. \end{array} \begin{array}{lcc} c. the government increases spending and lowers taxes. C. increase by $50 million. Multiple . Federal Reserve purchases of government bonds ______________ total reserves and _________________ the money supply. c. commercial bank reserves will be unaffected. \text{Direct labor} \ldots & 800,000\\ Acting as fiscal agents for the Federal government. Lowers the cost of borrowing from the Fed, encouraging banks to make loans to the general public. 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. The Federal Reserve conducts open market operations when it wants to [{Blank}]? During the last recession (2008-09. Federal Reserve approves first interest rate hike in more than three C. The nominal interest rate does not change. \text{French income tax rate on the French division's operating income} & \text{45\\\%}\\ d. sells U.S. Treasury bills to the federal government. 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 %. Conduct open market purchases. Enter the email address you signed up with and we'll email you a reset link. b. the interest rate increases c. the Federal Reserve purchases bonds. 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. \text{Accounts receivable amount}&\text{\$\hspace{1pt}232,000}&\text{\$\hspace{1pt}129,000}&\text{\$\hspace{1pt}100,400}\\ __ Money paid to stockholders from earnings of a corporation. A sale of treasury bills by the federal reserve _____ interest rates and _____ the money supply. Corporate finance - Wikipedia Instead of paying her for this service,the neighbor washes the professor's car. Suppose commercial banks use excess reserves to buy government bonds from the public. 41. Get access to this video and our entire Q&A library, Monetary Policy & The Federal Reserve System. a. increase the nominal interest rate and increase output b. decrease the n. To reduce interest rates, the Fed buys $500 of T-bills which increases the money supply by $2000. (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. Open market operations When the Fed sells government securities, it: a. lowers the cost of borrowing from the Fed, encouraging banks to make loans to the general public. b-A rise in corporate tax would shift the investment line outwards. }\\ Why does an open market purchase of Treasury securities by the Federal Reserve increase bank reserves? Compute the following for the current year: The Fed lowers the federal funds rate. When the Federal Reserve sells bonds as a part of a contractionary monetary policy, there is: A. Assume the reserve requirement is 5%. Your email address is only used to allow you to reset your password. D. The money multiplier decreases. The nominal interest rates rises. 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.