While those goals were articulated in 1977, 2 the approach and tools used to implement those objectives have changed over time. If the Fed wants to raise short-term interest rates, it should a. act to increase the money supply. Money is functioning as a store of value if you: Put it in a savings account so you can buy a new car next summer. Suppose the Federal Reserve purchases mortgage-backed securities (MBS). &\textbf{past due}&\textbf{past due}&\textbf{past due}\\[5pt] If you knew the answer, click the green Know box. When the Fed raises the reserve requirement, it's executing contractionary policy. If the Fed uses open-market operations, should it buy or sell government securities? Currency, transactions accounts, and traveler's checks. c) not change. 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. Suppose the Federal Reserve engages in open-market operations. &\textbf{past due}&\textbf{past due}&\textbf{past due}\\[5pt] b) borrow more from the Fed and lend less to the public. C) Total deposits decrease. 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. What cannot be used to shift aggregate demand? How would this affect the money supply? 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. a. decrease; decrease; decrease b. Should the Fed increase or decrease the money supply? Consider an expansionary open market operation. Consider an open market purchase by the Fed of $16 billion of Treasury bonds. Make sure you say increase or decrease/buy or sell. B) Total reserves increase D) The money multiplier decreases. b. sell government securities. a. decrease, downward. d. decrease the discount rate. $$ Explain your reasoning. This is an example of which type of unemployment? c. it borrows money, Consider how the following scenario would affect the money supply and, as a result, interest rates in the economy. are in the same box the next time you log in. d) Lowering the real interest rate. International Financial Advisor. The money supply increases. If you've accidentally put the card in the wrong box, just click on the card to take it out of the box. \text{Accounts receivable amount}&\text{\$\hspace{1pt}232,000}&\text{\$\hspace{1pt}129,000}&\text{\$\hspace{1pt}100,400}\\ Conduct open market sales of government bonds. D. interest rates will increase. 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. 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. C. money supply. Instead of paying her for this service,the neighbor washes the professor's car. 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 _______ . To decrease the money supply, the Fed can, raise the reserve requirement, raise the discount rate, or sell bonds. An increase in the money supply and an increase in the int. Name the three tools of monetary policy that the Federal Reserve System can do to combat unemployment/recession. B. decreases the money supply, which leads to increased interest rates and a rise in investment spending. }\\ The number of deposit dollars the banking system can create from $1 of excess reserves. Free . \textbf{ELEGANT LINENS}\\ Suppose government spending increases. Raise the reserve requirement, increase the discount rate, or . 1. (Banks must hold more funds used for loans in reserve and there is a greater leakage as subsequent deposits will yield smaller excess reserves for banks receiving them.) 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. Bank A with total deposits of $100 million isfully loaned up. During the last recession (2008-09. The fixed monthly cost is $21,000, and the variable cost. All rights reserved. They will remain unchanged. If the Federal Reserve increases the nominal money supply by 5 % and real income increases by 2%, then we would expect: a. prices to increase by 5%. B. decisions by the Fed to increase or decrease the money multiplier. The result is imperfect monitoring, which creates profit opportunities for speculators, who do not act as dealers but simply Which of the following is likely to cause a leftward shift in the aggregate supply curve, ceteris paribus? Suppose a market is dominated by three firms. Although it may feel like you're playing a game, your brain is still making more connections with the information to help you out. If the Open-Market Committee of the Federal Reserve sells securities, this action tends to: a. decrease the money supply. a. The buying and selling of government securities by the Fed is known as: A. open market operations. It also raises the reserve ratio. Multiple Choice . Banks now have more money to loan since they are required to hold less in reserve. Suppose the Federal Reserve buys government securities from commercial banks. b. decrease, upward. The Federal Reserve expands the money supply by 5 percent. c. the money supply and the price level would increase. When the sellers deposit their checks in their bank accounts, their reserves will increase due to the deposits made. copyright 2003-2023 Homework.Study.com. Total costs for the year (summarized alphabetically) were as follows: Raise discount rate 2. Ceteris paribus, an increase in _______ will cause an increase in ______. b. engage in open market purchases of government securities. c. an increase in the demand for bonds and a rise in bond prices. What is the impact of the purchase on the bank from which the Fed bought the securities? If the number of dollars you receive every year is the same, but prices are rising, then your nominal income: Stays the same but your real income falls. What is meant by open market operations? (ii) instructs the New York Fed to sell government securities in the foreign exchange market. Open-market operations occur when the Federal Reserve: a. buys U.S. Treasury bills from the federal government. 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. 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. \text{Direct labor} \ldots & 800,000\\ 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. \text{Total per category}&\text{?}&\text{?}&\text{? By raising or lowering the _______, the Fed changes the cost of money for banks, which impacts the incentive to borrow reserves. The financial sector has grown relative to the real economy and become more fragile. a. mortgages; Bank of America b. government securities; New York Fed c. government securities; Federal Reserve Bank of Florida d. Mortgages; Federal Reserve. \text{Accounts receivable amount}&\text{\$\hspace{1pt}263,000}&\text{\$\hspace{1pt}134,200}&\text{\$\hspace{1pt}64,200}\\ 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. Suppose a bank has $50,000 in transactions accounts and a minimum reserve requirement of 10 percent. Explain the statement. b. Could the Federal Reserve continue to carry out open market operations? c) buying and selling of government securities by the Treasury. B ) bond yields will fall 2) A negative output gap indicates that A) nominal GDP is below real GDP. D) there is no effect on bond yields. If the Federal Reserve System buys government securities from commercial banks and the public: a. the money supply will contract. 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. Ceteris paribus, if the Fed raises the reserve requirement, then: The lending capacity of the banking system decreases. Which of the following is likely to occur if people reduce their spending because they are worried about an economic downturn, ceteris paribus? The Federal Reserve (the Fed), the central bank of the United States, has a Congressional mandate to promote maximum employment and price stability. If the Fed decreases the money supply, GDP ________. Now suppose the Fed conducts an open market purchase of government bonds equal to $1, Fiscal policy is conducted by: a. c. real income increases. The Fed is most likely to do this by: A. purchasing government bonds from the public B. selling government bonds to the public C. selling government bonds to the treasury D. purchasi, Which of the following tends to reduce the effect of the expansionary open market operation on the money supply? D. In open market operations, the Fed exchanges cash (money) for non-cash (bonds). $$. C. Controlling the supply of money. Suppose the banks in the Federal Reserve System have $100 million in transactions accounts and the reserve requirement is 0.10. All other trademarks and copyrights are the property of their respective owners. a. Martin takes $150 out of his checking account and hides it in his house as cash. (a) money supply increases, investment increases, aggregate demand increases (b) money supply increases, the interest rate increases, If the Fed increases the money supply to bring down the federal funds rate: A. The result is that people _____.
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