When aggregate demand exceeds the full-employment level of output, the result is: LEFT ARROW - move card to the Don't know pile. The Fed sells Treasury bills in the open market b. . The Fed - Calculation of Reserve Balance Requirements then the Fed. You'll get a detailed solution from a subject matter expert that helps you learn core concepts. [Solved] Ceteris paribus,if the Fed raises the reserve requirement,then: A) The money multiplier increases. This problem has been solved! If the Fed sells government bonds, this will: A. Currency, transactions accounts, and traveler's checks. c. an increase in the quantity of money demanded. Privacy Policy and 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. Ceteris paribus, an increase in _______ will cause an increase in ______. If the Federal Reserve increases the discount rate: a. the federal funds rate must decrease. The Fed - Closing the Monetary Policy Curriculum Gap - Federal Reserve Suppose a market is dominated by three firms. 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 price level to decrease c. Unemployment to decrease d. Investment to decrease. The required reserve. Ceteris paribus, if the Fed reduces the reserve requirement, then: A. a)increases; increases b)increases; decreases c)decreases; increase, 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). b. Solved Ceteris paribus, if the Fed raised the required | Chegg.com Learn more about the Federal Reserve's control methods and examine contractionary and expansionary monetary policies. \text{Direct materials used} \ldots & \$ 750,000\\ Assume that banks use all funds except required, 13. A) remains unchanged; decreases B) increases; decreases C) decreases; increases D) increases; remains unchanged E) rem, A decrease in the discount rate: a. Decreases the money supply, b. 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. The capital account surplus will increase. 23. Facility location decisions are significant for an organization because:? B. influence the discount rate. a) 0.25 b) 0, Suppose the reserve requirement for checking deposits is 10 percent and banks do not hold any excess reserves. Answer: D. 15. D) Required reserves decrease. Compute the following for the current year: It transfers money from spenders to savers. Assume that the Fed increases the monetary base by $1 billion when the reserve requirement is 1/7. &\textbf{0-30 days}&\textbf{31-90 days}&\textbf{Over 90 days}\\ B. decreases the money supply, which leads to increased interest rates and a rise in investment spending. If the Federal Reserve raises interest rates, it means the money supply starts to deplete. a. increases; rises b. does not change; falls c. decreases; rises d. decreases; falls e. increases; falls. 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. In terms of pricing, which of the following is not true for a monopolist? b. rate of interest decreases. Government bond operations. Increase the demand for money. b. b. engage in open market purchases of government securities. Michael Haines 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. C) buying and selling of government s. In carrying out open market operations, the Federal Reserve usually buys and sells U.S. Treasury securities. C. The lending capacity of the banking system increases. The number and relative size of firms in an industry. We start by assuming that there is no reserve requirement or lending by the Central Bank. Using the oversimplified money multiplier, the money suppl, Assume the reserve requirement is 10%. 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. b. will cause banks to make more loans. Martin takes $150 out of his checking account and hides it in his house as cash. Consider an open market purchase by the Fed of $16 billion of Treasury bonds. The Federal Reserve carries out open-market operations, purchasing $1 million worth of bonds from banks. a. Ceteris paribus, if the reserve requirement is decreased to 0.05, then excess reserves will increase by: By raising or lowering the _______, the Fed changes the cost of money for banks, which impacts the incentive to borrow reserves. FROM THE STUDY SET c. Offer rat, 1. b. Any import duty paid to the French authorities is a deductible expense for calculating French income taxes. a. 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? \text{Percent uncollectible}&\text{8\\\%}&\text{17\\\%}&\text{31\\\%}\\ 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. a. mortgages; Bank of America b. government securities; New York Fed c. government securities; Federal Reserve Bank of Florida d. Mortgages; Federal Reserve. 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? B. decreases the bond price and decreases the interest rate. If the Fed wants to increase the money supply through an open market operation, it will a. purchase government securities. a. Terms of Service. &\textbf{past due}&\textbf{past due}&\textbf{past due}\\[5pt] The paper argues that the process of financialization has profoundly changed how capitalist economies operate. A. The money supply increases. 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. Key Points. D. All of the above. Perform open market purchases of securities. a. increase, increase, sell b. increase, increase, buy c. decrease, decrease, buy d. decrease, If the Fed is following policies to reduce inflation, it is most likely to be: a. lowering interest rates b. raising the money supply c. lowering the money supply d. both lowering interest rates and, When the interest rate falls in the money market, the quantity of money demanded ______ and the quantity of money supplied _______. b) borrow reserves from the public. PDF Practice Short Answer Final Exam Questions - Simon Fraser University Multiple Choice . 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 b. means by which the Fed supplies the economy with currency. Aggregate supply will increase or shift to the right. When the Fed engages in open-market operations, the transactions are conducted by: a. the Open Market Desk at the Federal Reserve Bank of New York. Consider an expansionary open market operation. are in the same box the next time you log in. Multiple . B. If the Fed uses open-market operations, should it buy or sell government securities? $$ 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. d) means by which the Fed supplies the, Suppose the Fed wishes to use monetary policy to close an expansionary gap. 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. d. rate of interest increases.. Determine whether each of the following, Open market operations are the a. buying and selling of Federal Reserve Notes in the open market. Chapter 14 Quiz Flashcards | Quizlet It forces them to modify their procedures. The result is imperfect monitoring, which creates profit opportunities for speculators, who do not act as dealers but simply If the Fed raises the reserve requirement, the money supply _____. Increase the reserve requirement C. Buy government securities D. Decrease the discount rate, When the Fed successfully decreases the money supply, GDP options: a. increases because the resulting increase in the interest rate leads to a decrease in investment b. increases because the resul, If the Fed wants to raise the interest rate, in the short run in the money market, the Fed: a) decreases the quantity of money b) increases the quantity of money c) shifts the demand for money curve leftward d) shifts the demand for money curve rightward, The Federal Reserve is becoming more cautious about rising inflationary pressure. D. Describe the categories change effect on net income and accounts receivable. This action increased the money supply by $2 million. Use these flashcards to help memorize information. Imperfect Market Monitoring and SOES Trading - academia.edu The difference between equilibrium output and full-employment output. The creation of a Federal Reserve System was recommended by. Assume that the currency-deposit ratio is 0.5. The shape of the curve determines the impact of an aggregate demand shift on prices and output. Increase / Decrease b. Banks now have more money to loan since they are required to hold less in reserve. b. decrease, upward. 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. Suppose the Federal Reserve buys government securities from the non-bank public. C. where a bank borrows reserves or bo, Open market operations are a) buying and selling of Federal Reserve Notes in the open market. All other trademarks and copyrights are the property of their respective owners. At what price per share did Wave Water issue common stock during 2012? A, Suppose that the Fed engages in an open-market purchase of $4,000 in securities from Bank A. Get access to this video and our entire Q&A library, How the Federal Reserve Changes the Money Supply and Affects Interest Rates. a. decrease, downward b. decrease, upward c. increase, downw, When the Federal Reserve engages in a restrictive monetary policy, the price of marketable government bonds will ___, assuming all other factors influencing the bond market remain the same. c) borrow less from the Fed and, If Federal Reserve decides to decrease the money supply in the United States, what will happen to: 1) the interest rate 2) the level of investment spending in America 3) the level of GDP 4) the level of money demand 3) the U.S interest rate 4) the level o. Professor Williams tutors her next-door neighbor's son in economics. Fill in either rise/fall or increase/decrease. Of these, 43 were sold for $\$ 105,000$ each and two remain in finished goods inventory. What effect will this open market operation have on demand deposits and M1? a. decrease b. increase c. not change, If the economy experiences an expansionary gap and the Fed sells US government securities in the open market, then ______. B. purchases government bonds to decrease the money supply. During the year, the company started and completed 45 motor homes at a cost of $\$ 55,000$ per unit. Suppose the bond market and the money market both start out in equilibrium and then the Federal Reserve increases the money supply. Assume the required reserve ratio is 10 percent and the FOMC orders an open market sale of $50 million in government securities to banks. \text{Expenses:}\\ Cost of finished goods manufactured. PDF AP Macroeconomics Unit 4 Practice Quiz #2 KEY 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 ______. b. 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. D. The collectio. 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. How can you tell? Assume a fixed demand for money curve and the Fed decreases the money supply. Make sure to remember your password. The bank now sells $5,000 in securities to the Federal Reserve Bank in its, When the Federal Reserve purchases Treasury securities in the openmarket, A. the public starts buying houses and firms invest in anticipation of banks increasing their reserves. C. excess reserves at commercial banks will increase. Explain your reasoning. The velocity of money is a. the rate at which the Fed puts money into the economy. A) increases; supply. A. What is the reserve-deposit ratio? C. decisions by the Fed to raise or lower interest rates. d) Lowering the real interest rate. Generally, the central bank. Ceteris paribus, if the Fed raises the reserve requirement, then: The lending capacity of the banking system decreases. By raising or lowering the _______, the Fed changes the cost of money for banks, which impacts the incentive to borrow reserves. The reserve ratio is 20%. The financial sector has grown relative to the real economy and become more fragile. Question 47 Ceteris Paribus, If The Fed Raises The Discount Rate, Then If the Fed raises the reserve requirement, the money supply _____. If not, how will the Central Bank control inflation? Officials indicated an aggressive path ahead, with rate rises coming at each of the . Also assume that banks do not hold excess reserves and there is no cash held by the public. Our experts can answer your tough homework and study questions. c. Purchase government bonds on the open market. B. Assume that the reserve requirement is 20%. raise the discount rate. This is an example of which type of unemployment? \begin{array}{lcc} A sale of treasury bills by the federal reserve _____ interest rates and _____ the money supply. Suppose commercial banks use excess reserves to buy government bonds from the public. What happens to interest rates? Suppose the Federal Reserve wishes to use monetary policy to close an expansionary gap. Your email address is only used to allow you to reset your password. 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. Chapter 14 Macro - Subjecto.com Suppose that the sellers of government securities redeem these checks drawn on the New York Fed for currency. Ceteris paribus, if the Fed raises the reserve requirement, then: e The lending capacity of the banking system decreases. What is meant by open market operations? \text{Percent uncollectible}&\text{8\\\%}&\text{17\\\%}&\text{31\\\%}\\ b. copyright 2003-2023 Homework.Study.com. Which of the following is likely to occur if OPEC increases the amount of oil it supplies and domestic energy prices fall, ceteris paribus? 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. Fiscal policy should be used to shift the aggregate demand curve. 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? 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? b. it buys Treasury securities, which decreases the money supply. eachus, which of the following will occur if the Fed buys bonds through open-market operations? 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. Now suppose the Fed conducts an open market purchase of government bonds equal to $1, Fiscal policy is conducted by: a. When the Federal Reserve increases the discount rate, banks will borrow A. fewer reserves and decrease lending. All other trademarks and copyrights are the property of their respective owners. c. has an expansionary effect on the money supply. $$ Previous question Next question A. decreases; decreases B. decreases; increases C. increases; decreases D. increases. Enter the email address you signed up with and we'll email you a reset link. An increase in the money supply and an increase in the int. 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. __ Money paid to stockholders from earnings of a corporation. If the Federal Reserve System buys government securities from commercial banks and the public: a. the money supply will contract. a) decrease, downward b) decrease, upward c) inc. Which of the following is likely to cause a leftward shift in the aggregate supply curve, ceteris paribus? 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? 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. Suppose the banks in the Federal Reserve System have $100 million in transactions accounts and the reserve requirement is 0.10. Eco 120 chapter 14 Flashcards | Quizlet b. C. Increase the supply of money. 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? Cause the money supply to decrease, b. Suppose the banks in the Federal Reserve System have $400 million in transactions accounts and the reserve requirement is 0.10. The Fed Raises Rates a Quarter Point and Signals More Ahead It creates money, it creates a transactions-account balance for the borrower, and the money supply increases. D. conduct open market sales. To decrease the money supply, the Fed can, raise the reserve requirement, raise the discount rate, or sell bonds. How does it affect the money supply? In order to maintain price stability, the Federal Reserve has decided to engage in monetary restraint. An open market operation is ____?A. c. buy bonds, thus driving up the interest rate. True or false? If the Fed increases the money supply, then ceteris 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. To see how well you know the information, try the Quiz or Test activity. If the Fed sells bonds: A.aggregate demand will increase. 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. An increase in the reserve ratio: a. increases the money multiplier. b. c) buying and selling of government securities by the Treasury. Econ Final Flashcards - Cram.com If the firm wants to sell one more carton of eggs, the firm: A flat or horizontal demand curve for a firm indicates that: If a perfectly competitive firm wanted to maximize its total revenues, it would produce: As much output as it is capable of producing. 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? Enter the effect of this open-market operation on Bank A's T-account, assuming that the proceeds from the p. If the Federal Reserve wants to decrease the money supply, it should: A. conduct open market purchases. C. The nominal interest rate does not change. 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. 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 _______ . d. commercial bank, Assume all money is held in the form of currency. \text{Gross Margin}&\text{\hspace{5pt}1,369,250}&\text{\hspace{5pt}1,369,250}\\ They will remain unchanged. The lender who forecloses will then end up with about $40,000. While those goals were articulated in 1977, 2 the approach and tools used to implement those objectives have changed over time. Instead of paying her for this service,the neighbor washes the professor's car. b) an open market sale and expansionary monetary policy. b. }\\ Suppose further that the required reserve, Explain briefly: a. Changing the reserve requirement is expensive for banks. A. change the liquidity levels of banks. c. means by which the Fed acts as the government's banker. D. all of the above. 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. The deposit-creation potential of the banking system is: A reduction in the money supply should shift the aggregate: Monetary policy involves the use of money and credit controls to: What not a basic monetary policy tool used by the Fed? The people who sold these bonds keep all their money in checking accounts. a) increases; decreases, b) decreases; increases, c) decreases; decreases, d) increases; increases. How will the lending capacity of the banking system be affected if the reserve requirement is 5 percent? Required reserves decrease. \end{array} Patricia's nominal annual income in 2009 was $60,000. 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). 1015. Open market operations. Ceteris paribus, if the Fed reduces the reserve requirement,thenMultiple Choicetotal reserves increase.the lending capacity of the banking system increases.total deposits decrease.the money multiplier decreases. Ceteris paribus, if the Fed reduces the reserve requirement ratio, then: A) The lending capacity of the banking system increases.