A perfectly competitive firm currently sells 30,000 cartons of eggs at $1.25 each. Federal Reserve purchases of government bonds ______________ total reserves and _________________ the money supply. D. decrease, Assume that the Federal Reserve establishes a minimum reserve requirement of 12.5%. When aggregate demand equals aggregate supply at the average price level. Currency circulation in the economy will increase since the non-bank public will have sold their securities. \text{Net Credit Sales}&\text{\$\hspace{1pt}1,454,500}&\text{\$\hspace{1pt}1,454,500}\\ 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. The velocity of money is a. the rate at which the Fed puts money into the economy. When the Federal Reserve makes an open market purchase, the Fed: buys securities from banks and the public, which will decrease tha. Decrease the discount rate. a. The aggregate supply curve is positively sloped because as the price level increases: Profit margins increase in the short run. Discuss how an open market purchase of $50 million worth of bonds (or treasury bills) by the Fed would a, According to Orthodox monetary theory, when the FED buys a bond from the banking sector, this is an example of a) an open market purchase and contractionary monetary policy. d. the demand for money. b) decreases the money supply and raises interest rates. c. real income increases. \text{U.S. income tax rate on the U.S. division's operating income} & \text{40\\\%}\\ When you need a break, try one of the other activities listed below the flashcards like Matching, Snowman, or Hungry Bug. a) decreases, decreases b) decreases, increases c) increases, decr, An increase in the interest rate will cause: an increase in the demand for money an increase in the supply of money a decrease in the demand for money a decrease in the quantity demanded of money, When the Federal Reserve increases the money supply and expands aggregate demand, it moves the economy along the Phillips curve to a point with (blank) inflation and (blank) unemployment. b. Holding the deposits or reserves of commercial banks. d. the money supply and the pric, When the Fed increases the quantity of money, the: a. equilibrium interest rate falls b. demand for money curve shifts right c. supply of money curve shifts leftward. b. sell government securities. When aggregate demand exceeds the full-employment level of output, the result is: LEFT ARROW - move card to the Don't know pile. A sale of treasury bills by the federal reserve _____ interest rates and _____ the money supply. $$ The Federal Reserve (the Fed), the central bank of the United States, has a Congressional mandate to promote maximum employment and price stability. 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. 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. If $200,000 is deposited in the bank, then ceteris paribus: Excess reserves will increase by $170,000. Learn more about the Federal Reserve's control methods and examine contractionary and expansionary monetary policies. D. open bonds operations. Assume that the currency-deposit ratio is 0.5. (Income taxes are not included in the computation of the cost-based transfer prices.) If the Fed decreases the money supply, GDP ________. U.S.incometaxrateontheU.S.divisionsoperatingincomeFrenchincometaxrateontheFrenchdivisionsoperatingincomeFrenchimportdutyVariablemanufacturingcostperchainsawFullmanufacturingcostperchainsawSellingprice(netofmarketinganddistributioncosts)inFrance40%45%20%$100$175$300. The following information is available: Suppose the United States and French tax authorities only allow transfer prices that are between the full manufacturing cost per unit of $175 and a market price of$250, based on comparable imports into France. Decrease in the federal funds rate B. Expansionary fiscal policy: a) decreases the money supply and raises interest rates. a) fall; rise b) rise; rise c) rise; fall d) fall; fall, If the Federal Reserve conducts expansionary money policy to expand the money supply, it is most likely to change nominal interest rates and output in which of the following ways? The result is that people _____. \text{Direct labor} \ldots & 800,000\\ 2) If, If the Fed increases the supply of money in the market, bond prices will and interest rates will. Which of the following is likely to occur if people reduce their spending because they are worried about an economic downturn, ceteris paribus? 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. Fill in either rise/fall or increase/decrease. Free . What is the reserve-deposit ratio? When the Fed decreases the discount rate, banks will a) borrow more from the Fed and lend more to the public. Over the 30-year life of the. Ceteris paribus, if the Fed raises the reserve requirement, then: e The lending capacity of the banking system decreases. }\\ B. decrease by $200 million. b. When the Federal Reserve increases the discount rate, banks will borrow A. fewer reserves and decrease lending. \text{Total per category}&\text{?}&\text{?}&\text{? The long-term real interest rate _____. An increase in the money supply and an increase in the int. If the price of computers falls during a period when the average price level remains constant, which of the following has occurred? The Great Depression was caused by a steep decline in the money supply when the stock market crashed in 1929. a) increases; decreases, b) decreases; increases, c) decreases; decreases, d) increases; increases. a. use open market operations to buy Treasury bills b. use open market operations to sell Treasury bills c. use discount policy to raise the disc. The Board of Governors has___ members, and they are appointed for ___year terms. Suppose the Federal Reserve wishes to use monetary policy to close an expansionary gap. B. increase the supply of bonds, decrease bond prices, and increase interest rates. \text{Direct materials used} \ldots & \$ 750,000\\ Currency, transactions accounts, and traveler's checks. 1. Which action would the federal reserve rate take to expand the money supply and lower the equilibrium interest rate? 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. to send you a reset link. 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. In response, people will a. sell bonds, thus driving up the interest rate. Match the terms with definitions. D. Decrease the supply of money. A) Increase money supply to decrease interest rates, increase i. Expansionary monetary policy: a) decreases government spending and/or raises taxes. 1015. Look at the large card and try to recall what is on the other side. ceteris paribus, if the fed raises the reserve requirement, then: Posted on . An open market operation is ____?A. then the Fed. Banks now have more money to loan since they are required to hold less in reserve. \text{Manufacturing overhead} \ldots & 1,200,000 \\ A lower amount of money in the economy makes it more expensive to borrow for banks and consumers.. &\textbf{Original Categories}&\textbf{Categories Change}\\[5pt] The VOC was also the first recorded joint-stock company to get a fixed capital stock. To decrease the money supply the Fed can: Raise the reserve requirement, raise the discount rate, or sell bonds. The current account deficit will increase. You'll get a detailed solution from a subject matter expert that helps you learn core concepts. C. $120,000 in checkable-deposit liabilities and $32,000 in reserves. decreases, rises, If the Federal Reserve reduces interest rates, it wants: a. b. the Open Market Desk at the Federal Reserve Board in Washington, D.C. c. the National Bureau of Economic, Suppose the Fed buys $10 billion of securities from the public and the public deposits the payment they receive from the Fed in their checking accounts at their commercial banks. 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. In order to increase sales by one item per month, the monopolist must lower the price of its software by $1 to $49. b) borrow reserves from the public. U.S. goods are less expensive for Americans so they buy fewer imports and more domestic goods. Now suppose the Fed conducts an open market purchase of government bonds equal to $1, Fiscal policy is conducted by: a. Use a balance sheet to show the impact on the bank's loans. The sale of bonds to the Fed by banks B. D. Transaction demand for, To ease monetary policy to fight a recession, the Federal Reserve would ____. Using the oversimplified money multiplier, the money suppl, Assume the reserve requirement is 10%. 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%. . Examples of money are: A. a check. Assuming this, how is the Fed likely to respond to fiscal stimulus if the economy is nearing full employment? Aggregate demand will decrease or shift to the left. B. the Fed is concerned about high unemployment rates. 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. Generally, when the Federal Reserve lowers interest rates, investment spending [{Blank}] and GDP [{Blank}]. During the last recession (2008-09. &\textbf{past due}&\textbf{past due}&\textbf{past due}\\[5pt] The Treasury buys bonds in the open market c. The Fed reduces reserve requirements d. The Treasury sells b. While those goals were articulated in 1977, 2 the approach and tools used to implement those objectives have changed over time. Accordingly, the Board is amending Regulation D to set the low reserve tranche for net transaction accounts for 2022 at $640.6 million, an increase of $457.7 million from 2021. Price falls to the level of minimum average total cost. 3 . C. Controlling the supply of money. 3. d. has a contractionary effect on the money supply. What happens to interest rates? Get access to this video and our entire Q&A library, How the Federal Reserve Changes the Money Supply and Affects Interest Rates. B. buy bonds lowering the price of bonds and driving up the interest rates. E.the Phillips curve will shift down. (a) increases because the resulting increase in the interest rate leads to a decrease in investment (b) increases because the resulting decrease in the interest rate leads to an increase in investment (, The Fed decreases the quantity of money. c. the money supply and the price level would increase. All other trademarks and copyrights are the property of their respective owners. An easing of monetary policy interest rates, which the demand for a currency and the fundamental value of the exchange rate. \textbf{ELEGANT LINENS}\\ \text{General and administrative expenses} \ldots & 500,000 \\ b. the same thing as the long-term growth rate of the money supply. Conduct open market purchases. 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. See Answer 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? Transcribed Image Text: Question Now we introduce banks that will act as liquidity providers in the economy. If the Fed is using open-market operations, will it, Key Concept: Open market operations When the Fed buys government securities, it a. c. first purchase, then sell, government securities. b. will cause banks to make more loans. B. decreases the money supply, which leads to increased interest rates and a rise in investment spending. Assume that banks use all funds except required, 13. b) running the check-clearing process. \text{Selling expenses} \ldots & 500,000 Get access to this video and our entire Q&A library, Monetary Policy & The Federal Reserve System. Ceteris paribus, if the reserve requirement is decreased to 0.07, then excess reserves will increase by: $3 million. Assume the reserve requirement is 5%. During the year, the company started and completed 45 motor homes at a cost of $\$ 55,000$ per unit. The buying and selling of government securities by the Fed is known as: A. open market operations. &\textbf{0-30 days}&\textbf{31-90 days}&\textbf{Over 90 days}\\ b. buys or sells foreign currency. When you've placed seven or more cards in the Don't know box, click "retry" to try those cards again. a) decrease, downward b) decrease, upward c) inc. Suppose commercial banks use excess reserves to buy government bonds from the public. When the Federal Reserve increases the discount-rate increases the discount rate as a part of a contractionary monetary policy, there is: A. B. influence the discount rate. In order to decrease the money supply, the Fed can. b. increase the money supply. D. $100,000 in checkable-deposit liabilities and $30,000 in reserves. You'll get a detailed solution from a subject matter expert that helps you learn core concepts. The difference between equilibrium output and full-employment output. b. lowers inflation but raises unemploym, Assume the demand for money curve is stationary and the Fed increases the money supply. Which of the following is likely to occur if OPEC increases the amount of oil it supplies and domestic energy prices fall, ceteris paribus? c. engage in open market sales of government securities. An increase in the money supply, When the Federal Reserve increases the discount rate as a part of a contractionary monetary policy, there is: a) a decrease in the money supply and a decrease in the interest rate. c) not change. C. decreases, 1. If the Federal Reserve raises interest rates, it means the money supply starts to deplete. If the Fed conducts an open-market sale, bank reserves _ and the money supply is likely to _. It involves the direct exchange of one good or service for another. The Federal Reserve cut interest rates on March 3, 2020, in response to COVID-19. $$. c. an increase in the demand for bonds and a rise in bond prices. d. the average number of times per year a dollar is spent. The answer is b. rate of interest decreases. That reduces liquidity and slows economic activity. Figure 14.10c depicts the aggregate investment function of an economy. Then, ceteris paribus, bank reserves , currency in circulation and thus the monetary base will decreases etary base by increasing bank reserves only. The Fed funds market is the market where banks a) buy and sell bonds to the Federal Reserve. In the short run, if the Fed wants to raise the federal funds rate, it: (i) instructs the New York Fed to sell government securities in the open market. A. Professor Williams tutors her next-door neighbor's son in economics. e. increase inflation. \textbf{Year Ended December 31, 2019}\\ 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. c) buying and selling of government securities by the Treasury. Buy Treasury bonds, bills, or notes on the bond market. d) All of the above. &\textbf{0-60 days}&\textbf{61-120 days}&\textbf{Over 120 days}\\ b. the price level increases. If the Fed sells bonds: A.aggregate demand will increase. a. Of these, 43 were sold for $\$ 105,000$ each and two remain in finished goods inventory. A. decreases; decreases B. decreases; increases C. increases; decreases D. increases. Consider an expansionary open market operation. State tax on first $3,000: 1.5$ percent. The fixed monthly cost is $21,000, and the variable cost. Makers, but perfectly competitive firms are price takers. $140,000 in checkable-deposit liabilities and $46,000 in reserves. 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. Which of the following could cause a recession? 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. there is an excess demand for bonds, so those looking to borrow by selling bonds can do so at a lower interest rate. The number and relative size of firms in an industry. \text{Selling price (net of marketing and distribution costs) in France} & \text{\$300}\\ If the Fed wants to raise short-term interest rates, it should a. act to increase the money supply. D. all of the above. Assume the required reserve ratio is 10 percent and the FOMC orders an open market sale of $50 million in government securities to banks. 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. When the Fed buys bonds in open-market operations, it _____ the money supply. d. Conduct open market sales. If the Federal Reserve increases the money supply, ceteris paribus, the: Money supply is defined as all the currency and other liquid instruments held by banks/individuals in a country's economy in a given time. \textbf{Comparative Income Statements}\\ FROM THE STUDY SET 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 ______. D. All of the above. b. the interest rate increases c. the Federal Reserve purchases bonds. Money is functioning as a standard of value if you: Compare the prices of running shoes online to those in a sporting goods store. d) borrow reserves from the Federal Reserve. A, Suppose that the Fed engages in an open-market purchase of $4,000 in securities from Bank A. b. increase causing an increase in investment spending shifting aggregate demand, When the Federal Reserve increases the money supply, it aggregate demand and moves the economy along the Phillips curve to a point with inflation and unemployment. \end{array} D. The value o, If the nominal interest rate were to increase, then: a. money demand decreases and the price level increases. Raise discount rate 2. }\\ Issuanceofstock. Cashdividends. U.S.incometaxrateontheU.S.divisionsoperatingincome, FrenchincometaxrateontheFrenchdivisionsoperatingincome, Sellingprice(netofmarketinganddistributioncosts)inFrance, Alexander Holmes, Barbara Illowsky, Susan Dean, Claudia Bienias Gilbertson, Debra Gentene, Mark W Lehman, Fundamentals of Engineering Economic Analysis, David Besanko, Mark Shanley, Scott Schaefer, Don Herrmann, J. David Spiceland, Wayne Thomas. d. decrease the discount rate. }\\ Multiple Choice . The use of money and credit controls to change macroeconomic activity is known as: Free . The information provided should help you work out why you missed a question or three! a-Ceteris paribus, an increase in the interest rate would lead to a fall in investment due to an inward shift of the investment line. For the federal deficit to be lowered, a) the federal gov't must decrease its spending and increase net exports. \text{Variable manufacturing cost per chainsaw} & \text{\$100}\\ d) Lowering the real interest 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. Decrease by $100, Suppose the Federal Reserve buys 3 treasury bonds from the public. d) increases government spending and/or cuts taxes. receivables. How can you tell? C. The value of the dollar will decrease in foreign exchange markets. C. influence the federal funds rate. It also raises the reserve ratio. 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. Suppose a market is dominated by three firms. 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. (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.) Then click the card to flip it. They will remain unchanged. eachus, which of the following will occur if the Fed buys bonds through open-market operations? c. the money supply divided by nominal GDP. 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. B. taxes. Assume central bank money (H) is initially equal to $100 million. c. buy bonds, thus driving up the interest rate. \text{Income tax expense} \ldots & 100,000 \\ Also assume that banks do not hold excess reserves and there is no cash held by the public. b. an increase in the demand for money balances. 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. A stock person who is laid off by a department store because retail sales across the country have decreased is _______ unemployed. Wave Waters total liabilities on December 31, 2012, are $7,800. B. purchases government bonds to decrease the money supply. C. decisions by the Fed to raise or lower interest rates. Ceteris paribus, an increase in _______ will cause an increase in ______. 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? The money supply decreases. 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. It needs to balance economic growth. C. increase by $50 million. What is meant by open market operations? c. an increase in the quantity of money demanded. Q01 . The aggregate demand curve should shift rightward. Suppose the banks in the Federal Reserve System have $100 million in transactions accounts and the reserve requirement is 0.10. It transfers money from spenders to savers. D) Required reserves decrease. $$ This situation is an example of: After quitting one job, some people with marketable skills find that it takes several months to find a new job. If the Fed wants to increase the money supply through an open market operation, it will a. purchase government securities. B. expansionary monetary policy by selling Treasury securities. $$ Q02 . C. a traveler's check. 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. The nominal interest rates falls. All rights reserved. b. it will be easier to obtain loans at commercial banks. The financial sector has grown relative to the real economy and become more fragile. If you knew the answer, click the green Know box. Suppose further that the required reserve, Explain briefly: a. Raise reserve requirements 3. b. foreign countries only. The equilibrium price level and equilibrium output should both increase. Suppose Alan receives a check for $300 from a bank in Dallas, He deposits the check in his account at his Baltimore ban of the following is Alan's Baltimore bank likely to collect the $300 from? [Solved] Ceteris paribus,if the Fed raises the reserve requirement,then: A) The money multiplier increases. 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. 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. Which of the following functions does the Fed perform? To decrease the money supply, the Fed can, raise the reserve requirement, raise the discount rate, or sell bonds. C. decrease interest rates. Money supply to decrease b. 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. b. Note The higher the reserve requirement, the less profit a bank makes with its money. d. rate of interest increases.. Inflation rate _____. If the Fed raises the reserve requirement, the money supply _____. (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. \begin{array}{lcc} 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? Suppose during the same period average prices in the economy rose by 150 percent.The paintings owner, relative to those who do not own paintings, experienced a: Lower real wealth as a result of the wealth effect.
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