d) Lowering the real interest rate. Open market operations When the Fed sells government securities, it: a. lowers the cost of borrowing from the Fed, encouraging banks to make loans to the general public. 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. Government bond operations. c) increases government spending and/or cuts taxes. (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. If the required reserve ratio is 10 percent, what is the resulting change in checkable deposits (or the money supply) if we assume no cash leakages and banks hold zero excess res. Ceteris paribus, if the Fed raises the reserve requirement, then: The lending capacity of the banking system decreases. 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. 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)? Suppose the Fed conducts $10 million open market purchase from Bank A. Raise the reserve requirement, increase the discount rate, or . If the Fed uses open-market operations, should it buy or sell government securities? b. means by which the Fed supplies the economy with currency. The Federal Reserve can decrease the money supply by: A. buying gold reserves on the open market B. buying foreign currency in the exchange market C. buying government bonds on the open market D. selling bonds on the open market E. selling financial capit. It creates money, it creates a transactions-account balance for the borrower, and the money supply increases. a. If the Fed sells bonds: A.aggregate demand will increase. d) increases government spending and/or cuts taxes. (A) How will M1 be affected initially? 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). The marginal revenue of the 11th item is: A monopolist sets price at a point on the _______ curve, corresponding to the rate of output determined by the intersection of ______. Toby Vail. If the Federal Reserve System buys government securities from commercial banks and the public: a. the money supply will contract. d) decreases, so the money supply decreases. A. C. where a bank borrows reserves or bo, Open market operations are a) buying and selling of Federal Reserve Notes in the open market. The difference between price and average total cost multiplied by the quantity sold. b. 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. Then click the card to flip it. b) an increase in the money supply and a decrease in the interest rate. Explain the statement. Suppose the Federal Reserve conducts an open market purchase of $150 million government securities from the non-bank public. C. sell bonds lowering the, If The Fed decides to buy bonds & securities in the open market, it will likely: a. increase the money supply and decrease aggregate demand. The capital account surplus will increase. B. a dollar bill. "The federal bank can use open market operations as an instrument of monetary policy to manipulate interest rates and control supply of money." copyright 2003-2023 Homework.Study.com. \text{Total uncollectible? Personal exemptions of$1,500. Total deposits decrease. a. monetary base b. Our experts can answer your tough homework and study questions. \text{Direct labor} \ldots & 800,000\\ \text{Bad Debt Expense}&\text{\hspace{12pt}?}&\text{\hspace{12pt}? $$ All other trademarks and copyrights are the property of their respective owners. When the Fed decreases the discount rate, banks will a) borrow more from the Fed and lend more to the public. \text{General and Administrative Expense}&\text{\hspace{12pt}425,000}&\text{\hspace{12pt}425,000}\\ B. How does it affect the money supply? Explore how the Federal Reserve uses monetary policies to control the money supply and affect interest rates in an effort to prevent another depression from occuring. Increase; appreciate b. Any import duty paid to the French authorities is a deductible expense for calculating French income taxes. 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. We develop a model of price formation in a dealership market where monitoring of the information flow requires costly effort. c) borrow reserves from other banks. a. Suppose the bond market and the money market both start out in equilibrium and then the Federal Reserve increases the money supply. b. decrease, upward. &\textbf{past due}&\textbf{past due}&\textbf{past due}\\[5pt] In terms of pricing, which of the following is not true for a monopolist? This problem has been solved! If the Federal Reserve increases the money supply, ceteris paribus, the: a. rate of interest is unaffected. b. buys or sells foreign currency. 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. 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. B. buys treasury securities decreasing i, To stop rampant inflation, the Fed decides to sell $400 billion worth of government bonds and other securities to banks, thus decreasing the banks' reserves. 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. Enter the email address you signed up with and we'll email you a reset link. If the Federal Reserve would like to increase the money supply, it can the reserve ratio, the discount rate, or government securities in open market operations. If the Fed sells $1 million of government bonds, what is the effect on the economy s reserves and money supply? \text{Percent uncollectible}&\text{8\\\%}&\text{17\\\%}&\text{31\\\%}\\ That reduces liquidity and slows economic activity. D. Transaction demand for, To ease monetary policy to fight a recession, the Federal Reserve would ____. 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. By raising or lowering the _______, the Fed changes the cost of money for banks, which impacts the incentive to borrow reserves. When the Fed buys bonds in open-market operations, it _____ the money supply. 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. b. sell bonds, thus driving down the interest rate. The money supply increases. Change in Excess Reserve = -100000000. d) borrow reserves from the Federal Reserve. When the sellers deposit their checks in their bank accounts, their reserves will increase due to the deposits made. Federal Reserve purchases of government bonds ______________ total reserves and _________________ the money supply. \textbf{Year Ended December 31, 2019}\\ \text{General and administrative expenses} \ldots & 500,000 \\ C. excess reserves at commercial banks will increase. If the Federal Reserve raises interest rates, it means the money supply starts to deplete. Suppose that the sellers of government securities redeem these checks drawn on the New York Fed for currency. 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. Sell Treasury bonds, bills, or notes on the bond market. \text{Cost of Goods Sold}&\underline{\text{\hspace{19pt}85,250}}&\underline{\text{\hspace{19pt}85,250}}\\ B ) bond yields will fall 2) A negative output gap indicates that A) nominal GDP is below real GDP. U.S.incometaxrateontheU.S.divisionsoperatingincome40%FrenchincometaxrateontheFrenchdivisionsoperatingincome45%Frenchimportduty20%Variablemanufacturingcostperchainsaw$100Fullmanufacturingcostperchainsaw$175Sellingprice(netofmarketinganddistributioncosts)inFrance$300\begin{matrix} The money supply decreases. The number of deposit dollars the banking system can create from $1 of excess reserves. Name the three tools of monetary policy that the Federal Reserve System can do to combat inflation. Answer: Answer: B. 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. b. it will be easier to obtain loans at commercial banks. b. an increase in the demand for money balances. If the Fed wants to increase the money supply through an open market operation, it will a. purchase government securities. D. The money multiplier decreases. Makers, but perfectly competitive firms are price takers. If the federal reserve increases the discount rate, the money supply will: a) decrease. b. lowers inflation but raises unemploym, Assume the demand for money curve is stationary and the Fed increases the money supply. \text{Selling price (net of marketing and distribution costs) in France} & \text{\$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 the price it asks for the bonds. What types of accounts are listed on the post-closing trial balance? b) means by which the Fed acts as the government's banker. The key decision maker for U.S. monetary policy is: Ceteris paribus, if the Fed raises the reserve requirement, then: e The lending capacity of the banking system decreases. **Instructions** Calculate after-tax operating income earned by United States and French divisions from transferring 200,000 chainsaws (a) at full manufacturing cost per unit and (b) a market price of comparable imports. Here are the answers with discussion for yesterday's quiz. D. The collectio. D. All of the above. b. the interest rate increases c. the Federal Reserve purchases bonds. B. influence the discount rate. Consider an expansionary open market operation. c) overseeing the buying and selling of government securities in the open market. An increase in the money supply and a decrease in the interest rate. a. 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. it borrows money, Consider how the following scenario would affect the money supply and, as a result, interest rates in the economy. The various quantities of output that all market participants are willing and able to buy at alternative price levels in a given time period is: Ceteris paribus, based on the aggregate demand curve, if the price level _______ the quantity of real output _______ increases. b. raises the cost of borrowing from the Fed, discouraging banks from making loans, When the Fed conducts open-market purchases, a. it buys Treasury securities, which increases the money supply. Expansionary fiscal policy is when a. the government lowers spending and raises taxes. Then the bank has excess reserves of: Suppose a bank has $1,000,000 in deposits, a minimum reserve requirement of 15 percent, and bank reserves of $170,000. When you've placed seven or more cards in the Don't know box, click "retry" to try those cards again. Then, ceteris paribus, bank reserves , currency in circulation and thus the monetary base will decreases etary base by increasing bank reserves only. 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). How does the Federal Reserve regulate the money supply? Use the model of aggregate demand and aggregate supply to illustrate the impact of this change in the interest rate on output and the price level in the short run. A stock person who is laid off by a department store because retail sales across the country have decreased is _______ unemployed.