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. 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. 1. Explain your reasoning. A stock person who is laid off by a department store because retail sales across the country have decreased is _______ unemployed. }\\ Working Paper No. If they have it, does that mean it exists already ? The Federal Reserve expands the money supply by 5 percent. Bob, a college student looking for summer work. Ceteris paribus, an increase in _______ will cause an increase in ______. d) increases government spending and/or cuts taxes. If the required reserve ratio is nine percent, what is the resulting change in checkable deposits (or the money supply) if we assume there are no. B. Let's say the Fed had raised interest rates by 1% before the family got a loan, and the interest rate offered by banks for a $300,000 home mortgage loan rose to 4.5%. The Federal Reserve cut interest rates on March 3, 2020, in response to COVID-19. a. decrease, downward. \text{General and Administrative Expense}&\text{\hspace{12pt}425,000}&\text{\hspace{12pt}425,000}\\ Now suppose the Fed lowers. 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. Use a balance sheet to show the impact on the bank's loans. b) an increase in the money supply and a decrease in the interest rate. e. increase inflation. 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? Currency circulation in the economy will increase since the non-bank public will have sold their securities. 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. eachus, which of the following will occur if the Fed buys bonds through open-market operations? Figure 14.10c depicts the aggregate investment function of an economy. 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. If the Fed raises the reserve requirement, the money supply _____. 1. Also assume that banks do not hold excess reserves and there is no cash held by the public. B. 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. Hence C is the correct option. Suppose a bank has $50,000 in transactions accounts and a minimum reserve requirement of 10 percent. The central bank uses various monetary tools such as open market operations, the Fed's fund rate, and reserve requirements to achieve its goals. 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%. Answer the question based on the following balance sheet for the First National Bank. 3. Embed Code - If you would like this activity on your web page, copy the script below and paste it into your web page. During the year, the company started and completed 45 motor homes at a cost of $\$ 55,000$ per unit. The nominal interest rates rises. C. $120,000 in checkable-deposit liabilities and $32,000 in reserves. 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. View Answer. Suppose further that the required reserve, Explain briefly: a. The current account deficit will increase. 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. 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. Which of the following lends reserves to private banks? 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? b. the Federal Reserve buys bonds on the open market. Expansionary fiscal policy is when a. the government lowers spending and raises taxes. then the Fed. The lender who forecloses will then end up with about $40,000. Increase / Decrease b. Explain. 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. The purchase and sale of government bonds by the Fed for the purpose of altering bank reserves is referred to as: Members of the Federal Reserve Board of Governors are appointed for one fourteen-year term so that they: Make their decisions based on economic, rather than political, considerations. C. excess reserves at commercial banks will increase. Suppose the Federal Reserve buys government securities from commercial banks. b) the federal reserve must raise interest rates and lower the required reserve ratio, If the Federal Reserve ("Fed") engages in the contractionary monetary policy then: A. the Fed is seeking to decrease the money supply and lower interest rates to lower inflation. $$ Ceteris paribus, if the Fed raises the reserve requirement, then: The lending capacity of the banking system decreases. C. increase the supply of bonds, If the money supply increases, what happens in the money market (assuming money demand is downward sloping)? Assume that the currency-deposit ratio is 0.5. All rights reserved. d. The Federal Reserve sells bonds on the open market. B) The lending capacity of the banking system decreases. The capital account surplus will increase. Which of the following is likely to cause a leftward shift in the aggregate supply curve, ceteris paribus? The lending capacity of the banking system decreases. a. The fixed monthly cost is $21,000, and the variable cost. Michael Haines \begin{array}{lcc} Find the taxable wages. Which of the following could cause a recession? If you forget it there is no way for StudyStack Personal exemptions of$1,500. (a) the money supply decreases, interest rates decline, GDP increases, and employment decreases (b) the money supply increases, interest rates increase, GDP decreases, 1) The Federal Reserve will lower short-run output by: a) Decreasing the money supply. C. The value of the dollar will decrease in foreign exchange markets. b. it will be easier to obtain loans at commercial banks. The result is imperfect monitoring, which creates profit opportunities for speculators, who do not act as dealers but simply A. decreases; decreases B. decreases; increases C. increases; decreases D. increases. Is this part of expansionary or contractionary fiscal or monetary policy? If the Fed sells bonds: A.aggregate demand will increase. &\textbf{0-30 days}&\textbf{31-90 days}&\textbf{Over 90 days}\\ Decrease in the federal funds rate B. a. decrease; decrease; decrease b. In order to increase sales by one item per month, the monopolist must lower the price of its software by $1 to $49. $$. Then click the card to flip it. 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. Suppose that banks are able to issue private IOU's, such that individuals deposit goods with the bank and the bank can promise a return on the deposit. \text{Accounts receivable amount}&\text{\$\hspace{1pt}232,000}&\text{\$\hspace{1pt}129,000}&\text{\$\hspace{1pt}100,400}\\ Fill in either rise/fall or increase/decrease. If the Fed sells $1 million of government bonds, what is the effect on the economy s reserves and money supply? b. prices to increase by 3%. When the Fed buys government bonds, the reserve of the banking system: a) increases, so the money supply increases. Toby Vail. raise the discount rate. C. decrease interest rates. If the Fed uses open-market operations, should it buy or sell government securities? 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. C. decisions by the Fed to raise or lower interest rates. It needs to balance economic growth. The money multiplier is equal to ______ and the reserve ratio is equal to _____%. d. the price level decreases. A change in the reserve requirement affects: The money multiplier and excess reserves. \text{Accounts receivable amount}&\text{\$\hspace{1pt}263,000}&\text{\$\hspace{1pt}134,200}&\text{\$\hspace{1pt}64,200}\\ When the Fed decreases the discount rate, banks will a) borrow more from the Fed and lend more to the public. D. Decrease the supply of money. Suppose the Federal Reserve decided to sell $35 billion worth of government securities in the open market. Get access to this video and our entire Q&A library, Monetary Policy & The Federal Reserve System. 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? Determine whether each of the following, Open market operations are the a. buying and selling of Federal Reserve Notes in the open market. \text{Manufacturing overhead} \ldots & 1,200,000 \\ 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)? In terms of pricing, which of the following is not true for a monopolist? b. buys bonds from banks, which increases bank reserves. a. If the Federal Reserve increases the money supply, ceteris paribus, the: a. rate of interest is unaffected. A. d. a decrease in the quantity de. b. 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.