(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. 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. B. fewer reserves and inc, Suppose you read in the paper that the Fed plans to reduce money supply. d. sells U.S. Treasury bills to the federal government. 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. The four components of aggregate demand are: Consumption, investment, government spending, and net exports. The lending capacity of the banking system decreases. b. the interest rate increases c. the Federal Reserve purchases bonds. Professor Williams tutors her next-door neighbor's son in economics. 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. a. increase the supply of bonds, thus driving up the interest rate. If the Fed sells government bonds, this will: A. The equilibrium price level and equilibrium output should both increase. If the economy is currently in monetary equilibrium, an increase in the money supply will a. When the economy overheats, the government sometimes cools it down with higher taxes, spending reductions, and less money. $$ d. the price level decreases. c. prices to increase by 2%. Name the three tools of monetary policy that the Federal Reserve System can do to combat inflation. Which of the following could cause a recession? a. decrease, downward b. decrease, upward c. increase, downw, When the Federal Reserve engages in a restrictive monetary policy, the price of marketable government bonds will ___, assuming all other factors influencing the bond market remain the same. Open market operations. The Federal Reserve (or Fed) often executes its policy by selling or buying U.S. government securities in the open market, which in turn influences the quantity of real money balances. When the Fed buys bonds in open-market operations, it _____ the money supply. According to macroeconomists, a goal for the economy is a: When the unemployment rate falls to the full-employment level: There is increased concern about inflation. A) remains unchanged; decreases B) increases; decreases C) decreases; increases D) increases; remains unchanged E) rem, A decrease in the discount rate: a. Decreases the money supply, b. }\\ The VOC was also the first recorded joint-stock company to get a fixed capital stock. III. E. discount rate operations. b) increases the money supply and lowers interest rates. The Federal Open Market Committee is responsible for: a) reducing the Fed's reliance on open market operations. Sell Treasury bonds, bills, or notes on the bond market. $$ Look at the large card and try to recall what is on the other side. 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. Buying securities in open market operations is a tool used by the Federal Reserve to increase the money supply in the economy, thus encouraging economic growth. If the Fed uses open-market operations, should it buy or sell government securities? 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. money demand increases and the price level decreases. By raising or lowering the _______, the Fed changes the cost of money for banks, which impacts the incentive to borrow reserves. Lowers the cost of borrowing from the Fed, encouraging banks to make loans to the general public. D. interest rates will increase. 3 . If the Fed wants to raise short-term interest rates, it should a. act to increase the money supply. &\textbf{0-30 days}&\textbf{31-90 days}&\textbf{Over 90 days}\\ Assume the Federal Reserve decides to sell $25 billion worth of U.S. Treasury bonds i. 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. The Board of Governors has ___ members,and they are appointed for ___ year terms. Interest rates typically rise in a recession because the demand for money increases when real income falls. The difference between price and average total cost multiplied by the quantity sold. A decrease in the reserve ratio will: a. Each bond is worth $1000 (so the Fed has bought $3000 worth of bonds). &\textbf{0-60 days}&\textbf{61-120 days}&\textbf{Over 120 days}\\ 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. Assume that banks use all funds except required, 13. 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. Key Points. Ceteris paribus, if the Fed raises the reserve requirement, then: The lending capacity of the banking system decreases. Open market operations c. Printing mo. 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. The sale of bonds to the Fed by the public C. Increases in banks' excess reserves D. Increases in. The required reserve. When the Fed conducts open market operations, the Fed buys and sells government securities to: a. the private sector. C. The lending capacity of the banking system increases. b. sell government securities. Answer: Answer: B. The Federal Reserve expands the money supply by 5 percent. 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. This causes excess reserves to, the money supply to, and the money multiplier to. B. decrease by $200 million. 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. D. The value o, If the nominal interest rate were to increase, then: a. money demand decreases and the price level increases. \text{Accounts receivable amount}&\text{\$\hspace{1pt}263,000}&\text{\$\hspace{1pt}134,200}&\text{\$\hspace{1pt}64,200}\\ \end{array} Expansionary fiscal policy: a) decreases the money supply and raises interest rates. See Answer d) setting interest r, Suppose the Federal Reserve sells $30 million worth of securities to a bank. lower reserve requirements.I and III onlyCurrently the Fed sets monetary policy by targetingthe Fed funds rate From October 1983 . 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. It forces them to modify their procedures. If the Federal Reserve increases the money supply, ceteris paribus, the: a. rate of interest is unaffected. The buying and selling of government bonds by the Fed to control bank reserves and the money supply are operations known as a. Although it may feel like you're playing a game, your brain is still making more connections with the information to help you out. d) decreases, so the money supply decreases. 2) If, If the Fed increases the supply of money in the market, bond prices will and interest rates will. d. rate of interest increases.. c. the money supply is likely to increase. Get access to this video and our entire Q&A library, How the Federal Reserve Changes the Money Supply and Affects Interest Rates. Savings accounts and certificates of deposit are called. D. Describe the categories change effect on net income and accounts receivable. B. taxes. 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? If the Federal Reserve System buys government securities from commercial banks and the public: a. the money supply will contract. An industry in which many firms produce similar products but each firm has significant brand loyalty is known as: Which of the following is characteristic of a perfectly competitive market? 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. c. Fed sells bonds. A. 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. Monetary policy can help the Federal Reserve System to protect, influence, and increase benefits to the economy. c. first purchase, then sell, government securities. Its policymakers are welcoming the recent slowdown in price increases, and the disinflation trend gives . c-A forecast of a permanent demand increase shifts the investment line . a. The lender who forecloses will then end up with about $40,000. When aggregate demand equals aggregate supply at the average price level. A perfectly competitive firm currently sells 30,000 cartons of eggs at $1.25 each. . 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. Cause the money supply to decrease, b. Free . Price charged is always less than marginal revenue. b) an open market sale and expansionary monetary policy. C. increase by $50 million. Hence C is the correct option. Federal Reserve purchases of government bonds ______________ total reserves and _________________ the money supply. Was there a profit or a loss for the year ended December 31, 2012? b. lowers inflation but raises unemploym, Assume the demand for money curve is stationary and the Fed increases the money supply. C. a traveler's check. B. decreases the bond price and decreases the interest rate. Your email address is only used to allow you to reset your password. What cannot be used to shift aggregate demand? The Baltimore banks regional federal reserve bank. 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. B. Required reserves decrease. C. treasury bond operations. Annual gross pay of $18,200. 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? Our experts can answer your tough homework and study questions. are the minimum amount of reserves a bank is required to hold. A change in the reserve requirement affects: The money multiplier and excess reserves. 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. a. 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. Interest rates b. Instead of paying her for this service,the neighbor washes the professor's car. 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. \text{Direct materials used} \ldots & \$ 750,000\\ If the Fed sells $1 million of government bonds, what is the effect on the economy s reserves and money supply? a. increases; rises b. does not change; falls c. decreases; rises d. decreases; falls e. increases; falls.