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If the Fed decides to engage in an open market operation to increase the money supply, what will it do? Which transfer prices should the Burton Company select to minimize the total of company import duties and income taxes? A decrease in the reserve ratio will: a. Make sure to remember your password. All rights reserved. Ceteris paribus, if the Fed raises the reserve requirement, then Expansionary fiscal policy is when a. the government lowers spending and raises taxes. d. equilibrium interest rate rises e. demand for money curve shifts leftward, 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}]. \text{Direct materials used} \ldots & \$ 750,000\\ When aggregate demand equals aggregate supply at the average price level. $$. An open market operation is ____?A. c. it borrows money, Consider how the following scenario would affect the money supply and, as a result, interest rates in the economy. Open market operations. \text{Total Expenses}&\text{\hspace{12pt}?}&\text{\hspace{12pt}? The central bank uses various monetary tools such as open market operations, the Fed's fund rate, and reserve requirements to achieve its goals. D) there is no effect on bond yields. b) running the check-clearing process. 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. 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? Fill in either rise/fall or increase/decrease. b. foreign countries only. 2. D. conduct open market sales. 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. Use these flashcards to help memorize information. Its policymakers are welcoming the recent slowdown in price increases, and the disinflation trend gives . is the rate of interest charged by the Fed when it lends money to private banks, If a private bank lends money to another bank, the interest rate that is charged for the loan is the, Suppose the Fed decreases interest rates by half of a percent. If the Federal Reserve commits to money supply growth of 2% per year and then the economy enters a recession, it would be time consistent to raise the growth rate to 5%. Cause a reduction in the dem. The reserve ratio is 20%. If the market price was below the ATC and at the current firm's rate of production the MC was less than the market price an increase in output would: increase profit but economic profits would still be negative. c) buying and selling of government securities by the Treasury. c) Increasing the money supply. A. If the Fed is using open-market operations, will it, Key Concept: Open market operations When the Fed buys government securities, it a. b. When the Fed buys bonds in open-market operations, it _____ the money supply. Ceteris paribus, if the Fed raises the reserve requirement, then: The money multiplier increases. Acting as fiscal agents for the Federal government. Figure 14.10c depicts the aggregate investment function of an economy. b) decreases the money supply and raises interest rates. This action increased the money supply by $2 million. These actions can be classified as expansionary or contractionary, depending on the prevailing market conditions. c. prices to increase by 2%. If the FED sells $10 million worth of government securities in an open market operation, then the money supply can potentially: A. increase by $150 million. c. buy bonds, thus driving up the interest rate. \begin{array}{lcc} An office worker who loses her job because she does not have the necessary computer skills is, ceteris paribus: Which of the following is likely to reduce the level of structural unemployment? This causes excess reserves to, the money supply to, and the money multiplier to. \end{array} a. 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. b. it will be easier to obtain loans at commercial banks. PDF Practice Short Answer Final Exam Questions - Simon Fraser University \begin{array}{lcc} Ceteris paribus, if the Fed reduces the reserve requirement, then: A. \text{Gross Margin}&\text{\hspace{5pt}1,369,250}&\text{\hspace{5pt}1,369,250}\\ E.the Phillips curve will shift down. 1. (PDF) Evidence of Bank Market Discipline in Subordinated Debenture Suppose the Federal Reserve wishes to use monetary policy to close an expansionary gap. \text{Manufacturing overhead} \ldots & 1,200,000 \\ View Answer. Some terms may not be used. The money supply decreases. Biagio Bossone. Solved I.The use of money and credit controls to change - Chegg Sell government securities 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 the incentive to borrow funds increases The Federal Reserve (the Fed), the central bank of the United States, has a Congressional mandate to promote maximum employment and price stability. . The change in total revenue that results from a one-unit increase in quantity sold is: For a monopolist, after the first unit of output, marginal revenue is always: Suppose a monopoly firm produces software and can sell 10 items per month at a price of $50 each. The people who sold these bonds keep all their money in checking accounts. Name the three tools of monetary policy that the Federal Reserve System can do to combat unemployment/recession. The following is the past-due category information for outstanding receivable debt for 2019. b. rate of interest decreases. c-A forecast of a permanent demand increase shifts the investment line . 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. D. Decrease the supply of money. Road Warrior Corporation began operations early in the current year, building luxury motor homes. \end{matrix} 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? 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. Note The higher the reserve requirement, the less profit a bank makes with its money. lower reserve requirements.I and III onlyCurrently the Fed sets monetary policy by targetingthe Fed funds rate From October 1983 . c. When the Fed decreases the interest rate it p; c. an increase in the quantity of money demanded. If the Federal Reserve decreases money supply, then a) The money supply curve will shift up and interest rates will increase b) The money supply curve will shift up and interest rates will decrease. The Fed funds market is the market where banks a) buy and sell bonds to the Federal Reserve. 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 nominal interest rates rises. A perfectly competitive firm currently sells 30,000 cartons of eggs at $1.25 each. Suppose the Federal Reserve buys government securities from the non-bank public. D. The value o, If the nominal interest rate were to increase, then: a. money demand decreases and the price level increases. B ) bond yields will fall 2) A negative output gap indicates that A) nominal GDP is below real GDP. Otherwise, click the red Don't know box. 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? Government bond operations. Over the 30-year life of the. Its marginal revenue curve is below its demand curve. Open-market operations occur when the Federal Reserve: a. buys U.S. Treasury bills from the federal government. Which of the following indicates the appropriate change in the U.S. economy? D. open bonds operations. B) bond yields will fall C) bond yields will increase as well. d. the money supply is not likely to change. Look at the large card and try to recall what is on the other side. It also raises the reserve ratio. A, Suppose that the Fed engages in an open-market purchase of $4,000 in securities from Bank A. are the minimum amount of reserves a bank is required to hold. The shape of the curve determines the impact of an aggregate demand shift on prices and output. The French import duty is charged on the price at which the product is transferred into France. The Federal Reserve has a few main goals with respect to the economy: to promote maximum employment, keep prices stable and ensure moderate long-term interest rates. a. monetary base b. c. c. reduce the reserve requirement. If not, how will the Central Bank control inflation? In response, people will a. sell bonds, thus driving up the interest rate. The Federal Reserve expands the money supply by 5 percent. c. Decrease interest rates. The Baltimore banks regional federal reserve bank. c. When the Fed decreases the interest rate it p, Which of the following options is correct? The Fed's decision amounted to a shift to a more cautious period of inflation fighting. b) means by which the Fed acts as the government's banker. Assume that the reserve requirement is 20%. What are some basic monetary policy tools used by the Fed? b) borrow more from the Fed and lend less to the public. c) decreases, so the money supply increases. a) decrease, downward b) decrease, upward c) inc. 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? Sell Treasury bonds, bills, or notes on the bond market. 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. Name the three tools of monetary policy that the Federal Reserve System can do to combat inflation. Martin takes $150 out of his checking account and hides it in his house as cash. c. an increase in the demand for bonds and a rise in bond prices. Ceteris paribus, an increase in _______ will cause an increase in ______. You can also use your keyboard to move the cards as follows: If you are logged in to your account, this website will remember which cards you know and don't know so that they Aggregate demand will decrease or shift to the left. 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. Match the terms with definitions. 3 . Terms of Service. D. Describe the categories change effect on net income and accounts receivable. If they have it, does that mean it exists already ? \text{Selling expenses} \ldots & 500,000 When the Federal Reserve makes an open market purchase, the Fed: If the federal reserve injects $3,000 into the banking system through open market operations, did the federal reserve buy or sell government bonds? Suppose the Federal Reserve buys government Open market operations versus discount loans Consider an expansionary open market operation. b. decrease, upward. d. raise the treasury bill rate. If the Fed uses open-market operations, should it buy or sell government securities? Decrease 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.) The deposit-creation potential of the banking system is: Suppose the entire banking system has $10,000 in excess reserves and a required reserve ratio of 20 percent. What types of accounts are listed on the post-closing trial balance? Interest Rates / Real GDP a. Professor Williams tutors her next-door neighbor's son in economics. C. Controlling the supply of money. The Fed Raises Rates a Quarter Point and Signals More Ahead Multiple Choice . Wave Waters total liabilities on December 31, 2012, are $7,800. "The federal bank can use open market operations as an instrument of monetary policy to manipulate interest rates and control supply of 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. 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. 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. Quiz 14: Monetary Policy | Quiz+ $$ 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. \end{array} B. taxes. Which of the following is NOT a basic monetary policy tool used by the Fed? }\\ 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. Answered: Question Now we introduce banks that | bartleby Make sure you say increase or decrease/buy or sell. Suppose the Federal Reserve purchases mortgage-backed securities (MBS). It needs to balance economic growth. 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 %. Assume central bank money (H) is initially equal to $100 million. Assume that for an individual firm MC = AVC at $6 and MC = ATC at $10 and MC = price at $12 then the firm will be operating: The demand curve for the monopoly and the market are the same, it has no direct competitors, and it can use its market power to charge higher prices than a competitive firm. See our Expansionary fiscal policy: a) decreases the money supply and raises interest rates. 16. In the money market, an excess demand of money will: A. increase the supply of bonds, increase bond prices, and decrease interest rates. When the Fed decreases the discount rate, banks will a) borrow more from the Fed and lend more to the public. A sale of treasury bills by the federal reserve _____ interest rates and _____ the money supply. The buying and selling of government securities by the Fed is known as: A. open market operations. Excess reserves increase. In order to maintain price stability, the Federal Reserve has decided to engage in monetary restraint. Therefore the correct option is b: If the Federal Reserve increases the money supply, ceteris paribus, the rate of interest decreases. Which of the following indicates the appropriate change in the U.S. economy after government intervention? a. mortgages; Bank of America b. government securities; New York Fed c. government securities; Federal Reserve Bank of Florida d. Mortgages; Federal Reserve. C. excess reserves at commercial banks will increase. Could the Federal Reserve continue to carry out open market operations? The difference between equilibrium output and full-employment output. c). B. influence the discount rate. The money supply increases. C. money supply. It improves aggregate demand, thus increasing the country's GDP. 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 _______ . 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. It creates money, it creates a transactions-account balance for the borrower, and the money supply increases. Banks must hold more funds used for loans in reserve. B. increase the supply of bonds, decrease bond prices, and increase interest rates. c) not change. Generally, the central bank. Suppose a bank has $50,000 in transactions accounts and a minimum reserve requirement of 10 percent. 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. $$ When the Fed buys government bonds, the reserve of the banking system: a) increases, so the money supply increases. 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. 2. Multiple . d. rate of interest increases.. In addition, the company had six partially completed units in its factory at year-end. B. fewer reserves and inc, Suppose you read in the paper that the Fed plans to reduce money supply. 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. The sale of bonds to the Fed by banks B. Consider an expansionary open market operation. B. an exchange between a private bank and the Federal Reserve where the Fed buys or sells government bonds to private banks. Currency, transactions accounts, and traveler's checks. }\\ The Fed - Closing the Monetary Policy Curriculum Gap - Federal Reserve Our experts can answer your tough homework and study questions. If the Open-Market Committee of the Federal Reserve sells securities, this action tends to: a. decrease the money supply. Where do you suppose the Fed gets the cash, to do this ? (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. Solved Ceteris paribus, if the Fed reduces the reserve | Chegg.com C. a traveler's check. ceteris paribus, if the fed raises the reserve requirement, then: View Answer. Why the Federal Reserve raises interest rates to combat inflation - CNBC 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 sells government bonds, this will: A. Which of the following is likely to occur if OPEC increases the amount of oil it supplies and domestic energy prices fall, ceteris paribus? If the banking system has a required reserve ratio of 20 percent, then the money multiplier is: It is more likely to occur if people lose faith in a nation's currency.