If $200,000 is deposited in the bank, then ceteris paribus: Excess reserves will increase by $170,000. d) decreases, so the money supply decreases. b. buys or sells foreign currency. When the economy overheats, the government sometimes cools it down with higher taxes, spending reductions, and less money. 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 ______. 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. Suppose the banks in the Federal Reserve System have $400 million in transactions accounts and the reserve requirement is 0.10. b. a decrease in the demand for money. Answer the question based on the following balance sheet for the First National Bank. A. expands, higher, higher B. expands, higher, lower C. expands, lower, higher D. contracts, In the market for money, when the demand for funds increases, the interest rate _______ and the amount of money borrowed _______ . \text{General and Administrative Expense}&\text{\hspace{12pt}425,000}&\text{\hspace{12pt}425,000}\\ 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. 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. 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 Answer: D. 15. \text{Expenses:}\\ The required reserve ratio is 16%. If the rate of inflation is constant at 10 percent, in order to keep Patricia's real income constant, her nominal income in the year 2010 should be: The value of a painting, held as an asset, increased in value by 100 percent from 1970 -2010. 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. $$ Assume that the reserve requirement is 20%. The lending capacity of the banking system decreases. 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. When you need a break, try one of the other activities listed below the flashcards like Matching, Snowman, or Hungry Bug. Ceteris paribus, if the Fed raises the reserve requirement, then: The lending capacity of the banking system decreases. Raise reserve requirements 3. are in the same box the next time you log in. The total change in deposits (with no drains) would be$12,857 million = (1/0.07) $900 million If the Fed wishes to stimulate the economy, it could I. buy U.S. government securities.II. Fill in either rise/fall or increase/decrease. The velocity of money is a. the rate at which the Fed puts money into the economy. Explain your reasoning. Assume the Federal Reserve decides to sell $25 billion worth of U.S. Treasury bonds i. What types of accounts are listed on the post-closing trial balance? It forces them to modify their procedures. A perfectly competitive firm currently sells 30,000 cartons of eggs at $1.25 each. Total deposits decrease. An increase in the money supply: A. lowers the interest rate, causing a decrease in investment and an increase in GDP B. lowers the interest rate, causing an increase in investment and a decrease in GDP C. lowers the interest rate, causing an increase in, If there is a negative 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. Your email address is only used to allow you to reset your password. b. the Federal Reserve buys bonds on the open market. Wave Waters total liabilities on December 31, 2012, are $7,800. If there is a recession, the Fed would most likely a. encourage banks to provide loans by. In the short run, the quantity of money demanded [{Blank}] and the nominal interest rate [{Blank}]. Increase / Decrease b. Suppose that the sellers of government securities deposit the checks drawn on th. Some terms may not be used. d. The money supply should increase when _ a. 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. Our experts can answer your tough homework and study questions. 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. Change in Excess Reserve = -100000000. 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. Controlling the supply of money. Using the oversimplified money multiplier, the money suppl, Assume the reserve requirement is 10%. Suppose the Federal Reserve engages in open-market operations. C. The value of the dollar will decrease in foreign exchange markets. Reserve Requirement Questions and Answers - Study.com c. reduce the reserve requirement. What is the impact of the purchase on the bank from which the Fed bought the securities? The number of deposit dollars the banking system can create from $1 of excess reserves. b. Government bond operations. Working Paper No. The difference between price and average total cost multiplied by the quantity sold. 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. 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. Suppose further that the required reserve, Explain briefly: a. Perform open market purchases of securities. Ceteris paribus, if the Fed reduces the reserve requirement ratio, then: A) The lending capacity of the banking system increases. c. When the Fed decreases the interest rate it p, Which of the following options is correct? Total reserves increase.B. a. increases, increase, increase b. increases, increase, decrease c. decreases, increase, decrease d. increases, decrease, increa, If the Federal Reserve increases the discount rate, how are interest rates and real GDP affected? Tax on amount over $3,000 :3 percent. Total costs for the year (summarized alphabetically) were as follows: The result is that people a. increase the supply of bonds, thus driving up the interest rate. The U.S. Treasury c. The U.S. Mint d. The federal government And involves: a. Quantitative easing b. PDF AP Macroeconomics Unit 4 Practice Quiz #2 KEY \begin{array}{c} 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. The current account deficit will increase. Which of the following indicates the appropriate change in the U.S. economy? 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. then the Fed. If the price of computers falls during a period when the average price level remains constant, which of the following has occurred? 16. Which of the following indicates the appropriate change in the U.S. economy after government intervention? $$ \end{array} Road Warrior Corporation began operations early in the current year, building luxury motor homes. Lowers the cost of borrowing from the Fed, encouraging banks to make loans to the general public. &\textbf{past due}&\textbf{past due}&\textbf{past due}\\[5pt] Suppose the Federal Reserve buys 100 mortgage-backed securities in the open market. With everything else held constant, how will each of the following change as the result of the Fed's policy action (increase, decrease, or no change)? If not, how will the Central Bank control inflation? True or false? If the Fed increases the money supply, then ceteris b) running the check-clearing process. Suppose a bank has $50,000 in transactions accounts and a minimum reserve requirement of 10 percent. What Happens When The Fed Raises Rates? - Forbes Advisor "The federal bank can use open market operations as an instrument of monetary policy to manipulate interest rates and control supply of money." All rights reserved. Makers, but perfectly competitive firms are price takers. Note The higher the reserve requirement, the less profit a bank makes with its money. The Federal Reserve uses open market operations to control the money supply when it A. issues government bonds to finance the federal government's deficit. }\\ Raise discount rate 2. According to the monetarist view, the aggregate supply curve is: Vertical at the natural rate of unemployment. Sell Treasury bonds, bills, or notes on the bond market. A. The fixed monthly cost is $21,000, and the variable cost. The Fed decides that it wants to expand the money supply by $40 million. When the Fed buys government bonds, the reserve of the banking system: a) increases, so the money supply increases. Consider an expansionary open market operation. 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! a) increases; decreases, b) decreases; increases, c) decreases; decreases, d) increases; increases. \text{Full manufacturing cost per chainsaw} & \text{\$175}\\ You would need to create a new account. 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? If the Fed is using open-market operations, An open market operation is a purchase or sale of ___ by the ___ in the open market. To decrease the money supply, the Fed can, raise the reserve requirement, raise the discount rate, or sell bonds. 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? The supply of money increases when: a. the value of money increases. }\\ e. raise the reserve requirement. 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. Was there a profit or a loss for the year ended December 31, 2012? 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. It also raises the reserve ratio. 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 ______. b. 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? View Answer. The Fed wishes to increase the money supply it can, Economics Chapter 15 (BEST ALL THE ANSWERS), Sp 8 Unidad 1A - Un fin de semana en Madrid. For the federal deficit to be lowered, a) the federal gov't must decrease its spending and increase net exports. The long-term real interest rate _____. c. (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. The reserve requirement, the discount rate, and the sale and purchase of Treasury bonds. A change in the reserve requirement affects a the a) 0.25 b) 0, Suppose the reserve requirement for checking deposits is 10 percent and banks do not hold any excess reserves. Michael Haines We start by assuming that there is no reserve requirement or lending by the Central Bank. 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. The Fed sells Treasury bills in the open market b. Use these flashcards to help memorize information. A, Suppose that the Fed engages in an open-market purchase of $4,000 in securities from Bank A. The Dutch East India Company (also known by the abbreviation "VOC" in Dutch) was the first publicly listed company ever to pay regular dividends. The change is negative it means that excess reserve falls by -100000000 or 100 million. The nominal interest rates rises. Fill in either rise/fall or increase/decrease. b. the interest rate rises and this stimulates consumption spending. Saturday Quiz - August 14, 2010 - answers and discussion The buying and selling of government bonds by the Fed to control bank reserves and the money supply are operations known as a. If the Federal Reserve increases the money supply, ceteris paribus, the: a. rate of interest is unaffected. 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. decrease, downward b. decrease. Currency, transactions accounts, and traveler's checks. \text{General and administrative expenses} \ldots & 500,000 \\ lower reserve requirements.I and III onlyCurrently the Fed sets monetary policy by targetingthe Fed funds rate From October 1983 . If the Fed wishes to increase the money supply it can: The purchase and sale of government bonds by the Fed for the purpose of altering bank reserves is referred to as: If the Fed wants to increase bank reserves, it can: If the Fed wants to reduce bank reserves, it can: Raise the discount rate or sell bonds on the open market.
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