If a bank does not have enough reserves, it can. What are some basic monetary policy tools used by the Fed? What can be used to shift aggregate demand? \text{Percent uncollectible}&\text{8\\\%}&\text{17\\\%}&\text{31\\\%}\\ Suppose the banks in the Federal Reserve System have $400 million in transactions accounts and the reserve requirement is 0.10. The Baltimore banks regional federal reserve bank. Suppose the banks in the Federal Reserve System have $100 million in transactions accounts and the reserve requirement is 0.10. The result is imperfect monitoring, which creates profit opportunities for speculators, who do not act as dealers but simply d) increases government spending and/or cuts taxes. According to the monetarist view, the aggregate supply curve is: Vertical at the natural rate of unemployment. B. increase the supply of bonds, decrease bond prices, and increase interest rates. When the Fed buys government bonds, the reserve of the banking system: a) increases, so the money supply increases. Excess reserves increase. 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. c) not change. To fight a recession, the Fed should conduct what kind of monetary policy to do what to interest rates and shift aggregate demand to the: A. contractionary; increase; left B. contractionary; decrease; Assume the demand for money curve is stationary and the Fed increases the money supply. b. the money supply is likely to decrease. Could the Federal Reserve continue to carry out open market operations? If there is a recession, the Fed would most likely a. encourage banks to provide loans by. It allows people to obtain more goods than they can using money. 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. 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? Toby Vail. c. real income increases. \text{U.S. income tax rate on the U.S. division's operating income} & \text{40\\\%}\\ 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. &\textbf{past due}&\textbf{past due}&\textbf{past due}\\[5pt] **Instructions** Examples of money are: A. a check. As a result, the money supply will: a. increase by $1 billion. e. increase inflation. to send you a reset link. \text{Accounts receivable amount}&\text{\$\hspace{1pt}232,000}&\text{\$\hspace{1pt}129,000}&\text{\$\hspace{1pt}100,400}\\ \end{array} b. it will be easier to obtain loans at commercial banks. Answer: Answer: B. 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). The long-term real interest rate _____. b. the Federal Reserve buys bonds on the open market. a) 0.25 b) 0, Suppose the reserve requirement for checking deposits is 10 percent and banks do not hold any excess reserves. Suppose the Federal Reserve buys government securities from the non-bank public. B. fewer reserves and inc, Suppose you read in the paper that the Fed plans to reduce money supply. Suppose government spending increases. If the fed increases the money supply, what will happen to each of the following (other things being equal)? What effect will this open market operation have on demand deposits and M1? c. prices to increase by 2%. b. decrease the money supply and decrease aggregate demand. Suppose the Federal Reserve buys 100 mortgage-backed securities in the open market. How does the Federal Reserve regulate the money supply? (A) How will M1 be affected initially? When the Fed raises the reserve requirement, it's executing contractionary policy. }\\ A combination of flexible rules and limited discretion. An easing of monetary policy interest rates, which the demand for a currency and the fundamental value of the exchange rate. \text{Total per category}&\text{?}&\text{?}&\text{? &\textbf{0-30 days}&\textbf{31-90 days}&\textbf{Over 90 days}\\ Ceteris paribus, if the Fed raises the reserve requirement, then: e The lending capacity of the banking system decreases. c. the money supply is likely to increase. C) buying and selling of government s. In carrying out open market operations, the Federal Reserve usually buys and sells U.S. Treasury securities. 1. b. If the Fed wants to increase the money supply through an open market operation, it will a. purchase government securities. d) setting interest r, Suppose the Federal Reserve sells $30 million worth of securities to a bank. c. first purchase, then sell, government securities. Your email address is only used to allow you to reset your password. $$ b) borrow reserves from the public. Fill in either rise/fall or increase/decrease. Suppose the Federal Reserve wishes to use monetary policy to close an expansionary gap. The price level to decrease c. Unemployment to decrease d. Investment to decrease. (Income taxes are not included in the computation of the cost-based transfer prices.) a. mortgages; Bank of America b. government securities; New York Fed c. government securities; Federal Reserve Bank of Florida d. Mortgages; Federal Reserve. The Federal Reserve Bank b. c) overseeing the buying and selling of government securities in the open market. The supply of money increases when: a. the value of money increases. Raise reserve requirements 3. Instead of paying her for this service,the neighbor washes the professor's car. If the Fed sells $1 million of government bonds, what is the effect on the economy s reserves and money supply? Assume a fixed demand for money curve and the Fed decreases the money supply. c) decreases government spending and/or raises taxes. a) Given the required reserve ratio, RR/D=0.10, the excess reserves to deposits ratio, ER/D=0.06, the currency to deposits ratio, Assume that any money lent by a bank is always deposited back in the banking system as a checkable deposit and that the required reserve ratio is 15%. copyright 2003-2023 Homework.Study.com. Check all that apply. The Fed approved a 0.25 percentage point rate hike, the first increase since December 2018. See Answer Assuming this, how is the Fed likely to respond to fiscal stimulus if the economy is nearing full employment? Currency, transactions accounts, and traveler's checks. B. there is an excess demand for bonds, so those looking to borrow by selling bonds can do so at a lower interest rate. Suppose the Fed conducts $10 million open market purchase from Bank A. d) means by which the Fed supplies the, Suppose the Fed wishes to use monetary policy to close an expansionary gap. Suppose the Federal Reserve buys government securities from the nonbank public. d) Lowering the real interest rate. 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. Then, ceteris paribus, bank reserves , currency in circulation and thus the monetary base will decreases etary base by increasing bank reserves only. \begin{array}{c} C) Excess reserves increase. 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. Any import duty paid to the French authorities is a deductible expense for calculating French income taxes. 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 Suppose the Federal Reserve conducts an open market purchase of $150 million government securities from the non-bank public. C. excess reserves at commercial banks will increase. Open market operations. B. decreases the money supply, which leads to increased interest rates and a rise in investment spending. }\\ 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? The reserve ratio is 20%. 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? \text{Cost of Goods Sold}&\underline{\text{\hspace{19pt}85,250}}&\underline{\text{\hspace{19pt}85,250}}\\ 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. [Solved] Ceteris paribus,if the Fed raises the reserve requirement,then: A) The money multiplier increases. Perform open market purchases of securities. B. the Fed is concerned about high unemployment rates. 1) Ceteris paribus, if bond prices rise, then A) the Federal reserve must be pursuing contractionary monetary policy. 2. Patricia's nominal annual income in 2009 was $60,000. 1. c. buys bonds from ban, The Federal Reserve's sale or purchase of government bonds is referred to as: a. open market operations b. credit rationing c. quantitative easing d. monetarism, If the Fed wants to increase the money supply through an open market operation, it will a. purchase government securities. \text{Total uncollectible? 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. b. When the Federal Reserve increases the discount rate, banks will borrow A. fewer reserves and decrease lending. 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. The Treasury buys bonds in the open market c. The Fed reduces reserve requirements d. The Treasury sells b. A perfectly competitive firm currently sells 30,000 cartons of eggs at $1.25 each. The Burton Company manufactures chainsaws at its plant in Sandusky, Ohio. 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. ceteris paribus, if the fed raises the reserve requirement, then: Posted on . c. Purchase government bonds on the open market. 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? D. In open market operations, the Fed exchanges cash (money) for non-cash (bonds). The text describes the theoretical developments of the assignment rules regarding fiscal and monetary policies and the respective roles in macroeconomics stabilisation. b. the price level increases. When the Federal Reserve increases the discount-rate increases the discount rate as a part of a contractionary monetary policy, there is: A. c). Also assume the Federal Reserve conducts an Open Market Operations purchase of U.S. Treasury securities in the amoun, Assume that the reserve requirement is 20 percent, banks do not hold excess reserves, and there is no cash held by the public. 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. Bank A with total deposits of $100 million isfully loaned up. Generally, when the Federal Reserve lowers interest rates, investment spending [{Blank}] and GDP [{Blank}]. B. buy bonds lowering the price of bonds and driving up the interest rates. Generally, the central bank. 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. expansionary monetary policy by selling Treasury securities. the process of selling Fed-issued IOUs between banks. A decrease in the reserve ratio will: a. 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. c) increases government spending and/or cuts taxes. Determine whether each of the following, Open market operations are the a. buying and selling of Federal Reserve Notes in the open market. b) increases, so the money supply decreases. An increase in the reserve ratio: a. increases the money multiplier. The Fed's decision amounted to a shift to a more cautious period of inflation fighting. d. commercial bank, Assume all money is held in the form of currency. 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. d. The Federal Reserve sells bonds on the open market. c. state and local government agencies only. d. lower reserve requirements. b. What happens to interest rates? Was there a profit or a loss for the year ended December 31, 2012? Open-market operations occur when the Federal Reserve: a. buys U.S. Treasury bills from the federal government. b. increase the supply of bonds, thus driving down the interest rate. 3 . We start by assuming that there is no reserve requirement or lending by the Central Bank. d. The money supply should increase when _ a. What impact would this action have on the economy? Increase government spending. Ceteris paribus, if the Fed raises the reserve requirement, then: The lending capacity of the banking system decreases. U.S.incometaxrateontheU.S.divisionsoperatingincome40%FrenchincometaxrateontheFrenchdivisionsoperatingincome45%Frenchimportduty20%Variablemanufacturingcostperchainsaw$100Fullmanufacturingcostperchainsaw$175Sellingprice(netofmarketinganddistributioncosts)inFrance$300\begin{matrix} \textbf{Year Ended December 31, 2019}\\ Interest rates typically rise in a recession because the demand for money increases when real income falls. 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.