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 sale of bonds to the Fed by banks B. a. a) increases; decreases, b) decreases; increases, c) decreases; decreases, d) increases; increases. B. d. The Federal Reserve sells bonds on the open market. The shape of the curve determines the impact of an aggregate demand shift on prices and output. Transcribed Image Text: Question Now we introduce banks that will act as liquidity providers in the economy. b. B. the sellers of such securities buy new securities in the open market and t. Assume there is no leakage from the banking system and that all commercial banks are loaned up. The Fed has most likely reduced the, If the Fed wishes to increase the money supply it can, If the Fed wishes to decrease the money supply it can, The rate of interest banks charge each other for lending reserves is the, 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, consists of seven members appointed by the President of the United States, who together act as the key decision-making entity for monetary policy, Bank reserves in excess of required reserves, Ceteris paribus, if the Fed raises the discount rate, then, the incentive to borrow reserves decreases. A Burton marketing division in Lille, France, imports 200,000 chainsaws annually from the United States. The price level to decrease c. Unemployment to decrease d. Investment to decrease. 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. c). b. the interest rate rises and this stimulates consumption spending. 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. Explain your reasoning. d. lend more reserves to commercial banks. When the Fed raises the reserve requirement, it's executing contractionary policy. \text{General and administrative expenses} \ldots & 500,000 \\ 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. When you need a break, try one of the other activities listed below the flashcards like Matching, Snowman, or Hungry Bug. Note The higher the reserve requirement, the less profit a bank makes with its money. (Income taxes are not included in the computation of the cost-based transfer prices.) a. In order to maintain price stability, the Federal Reserve has decided to engage in monetary restraint. \text{Total per category}&\text{?}&\text{?}&\text{? Government bond operations. In the money market, an excess demand of money will: A. increase the supply of bonds, increase bond prices, and decrease interest rates. What is the impact of the purchase on the bank from which the Fed bought the securities? How does the Federal Reserve regulate the money supply? Suppose the Federal Reserve buys government securities from the nonbank public. Cause the money supply to increase, c. Not affect the money supply, d. Decrease the money multiplier. 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. What is Wave Waters debt ratio on this date? B. excess reserves at commercial banks will decrease. A lower amount of money in the economy makes it more expensive to borrow for banks and consumers.. b) Lowering the nominal interest rate. The lender who forecloses will then end up with about $40,000. then the Fed. Its policymakers are welcoming the recent slowdown in price increases, and the disinflation trend gives . Conduct open market purchases. Explain the statement. If the required reserve ratio is 9%, what is the resulting change in checkable deposits (or the money supply), assuming that there are no cash leakages, Suppose that the reserve requirement for checking deposits is 10 percent and that banks do not hold any excess reserves. B. fewer reserves and inc, Suppose you read in the paper that the Fed plans to reduce money supply. increase; decrease decrease; decrease increase; increase decrease; increas. An expansionary fiscal policy is when a. the government lowers spending and raises taxes. $$ This is an example of which type of unemployment? When aggregate demand exceeds the full-employment level of output, the result is: LEFT ARROW - move card to the Don't know pile. Ceteris paribus, if the reserve requirement is decreased to 0.07, then excess reserves will increase by: $3 million. D. open bonds operations. Consider an expansionary open market operation. a. D. $100,000 in checkable-deposit liabilities and $30,000 in reserves. The use of money and credit controls to change macroeconomic activity is known as: Monetary policy. Examples of money are: A. a check. \text{French import duty} & \text{20\\\%}\\ Toby Vail. C. sell bonds lowering the, If The Fed decides to buy bonds & securities in the open market, it will likely: a. increase the money supply and decrease aggregate demand. Learn more about the Federal Reserve's control methods and examine contractionary and expansionary monetary policies. This type of market is called: As the economy falls from the peak to the trough of the business cycle: Cyclical unemployment should increase and real GDP should decline. D. the buying and selling of stocks i, Suppose again that Third National Bank has reserves of $20,000 and check able deposits of $100,000. \textbf{Year Ended December 31, 2019}\\ As a result, the money supply will: a. increase by $1 billion. 16. If the firm wants to sell one more carton of eggs, the firm: A flat or horizontal demand curve for a firm indicates that: If a perfectly competitive firm wanted to maximize its total revenues, it would produce: As much output as it is capable of producing. \end{array} In response, people will a. sell bonds, thus driving up the interest rate. $$ The Fed decides that it wants to expand the money supply by $40 million. Its marginal revenue curve is below its demand curve. 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. D. decrease, Assume that the Federal Reserve establishes a minimum reserve requirement of 12.5%. b) increase causing an increase in investment spending shifting aggregate deman, An expansionary monetary policy ____ the money supply, causing the real interest rate to ____ and planned investment to ____. Determine the December 31, 2012, balances in Wave Waters shareholders equity accounts and total shareholders equity on this date. Then click the card to flip it. 26. Now suppose the Fed lowers. a) 0.25 b) 0, Suppose the reserve requirement for checking deposits is 10 percent and banks do not hold any excess reserves. Assuming the economy is in the upward sloping portion of the eclectic aggregate supply curve, what should happen to the price level and output as a result of the Fed's action, ceteris paribus? See our 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 aggregate supply curve, if the price level _______ the quantity of real output _______ increases. d) increases government spending and/or cuts taxes. B. The supply of money increases when: a. the value of money increases. 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. 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 _______. An increase in the money supply and an increase in the int. 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. Suppose that the sellers of government securities redeem these checks drawn on the New York Fed for currency. They will increase. Assume that banks use all funds except required, 13. Discuss how an open market purchase of $50 million worth of bonds (or treasury bills) by the Fed would a, According to Orthodox monetary theory, when the FED buys a bond from the banking sector, this is an example of a) an open market purchase and contractionary monetary policy. Total reserves increase.B. $$ Fill in either rise/fall or increase/decrease. \text{Total uncollectible? b) increases, so the money supply decreases. When the Fed buys government Securities in the open market (a) bank reserves increase (b) bank reserves decline (c) money supply increases but bank reserves remain unchanged (d) money supply declines but bank reserves remain unchanged. d. commercial bank, Assume all money is held in the form of currency. b. the Open Market Desk at the Federal Reserve Board in Washington, D.C. c. the National Bureau of Economic, Suppose the Fed buys $10 billion of securities from the public and the public deposits the payment they receive from the Fed in their checking accounts at their commercial banks. 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. 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. Over the 30-year life of the. Assume that the currency-deposit ratio is 0.5. c. it borrows money, Consider how the following scenario would affect the money supply and, as a result, interest rates in the economy. C. purchases government bonds to increa, 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 Bank o, Assume that the required reserve ratio is 10%; banks hold no excess reserves, and the public holds all money in the form of currency. Which of the following lends reserves to private banks? b. buys or sells foreign currency. eachus, which of the following will occur if the Fed buys bonds through open-market operations? \end{array} An increase in the reserve ratio: a. increases the money multiplier. Annual gross pay of $18,200. It sells $20 billion in U.S. securities. b. prices to increase by 3%. b) means by which the Fed acts as the government's banker. Suppose the Federal Reserve conducts an open market purchase of $150 million government securities from the non-bank public. C. decisions by the Fed to raise or lower interest rates. D. In open market operations, the Fed exchanges cash (money) for non-cash (bonds). An open market operation decreases the money supply when the Federal Reserve a. sells bonds to banks, which increases bank reserves. A perfectly competitive firm is a price taker because: It has no control over the market price of its product. U.S.incometaxrateontheU.S.divisionsoperatingincome40%FrenchincometaxrateontheFrenchdivisionsoperatingincome45%Frenchimportduty20%Variablemanufacturingcostperchainsaw$100Fullmanufacturingcostperchainsaw$175Sellingprice(netofmarketinganddistributioncosts)inFrance$300\begin{matrix} "The federal bank can use open market operations as an instrument of monetary policy to manipulate interest rates and control supply of money." 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. Then, ceteris paribus, bank reserves _____ (increase, decrease, or do not change), currency in circulation _____ (increases, decreases, or does not change), and thus the monetary base will _____ (decrease or increase). The money supply decreases. 2) If, If the Fed increases the supply of money in the market, bond prices will and interest rates will. Ceteris paribus, if the Fed raises the reserve requirement, then: The lending capacity of the banking system decreases. The sale of bonds to the Fed by the public C. Increases in banks' excess reserves D. Increases in. 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. To manage earnings more favorably, Elegant Linens considers changing the past-due categories as follows. If the Fed decides to engage in an open market operation to increase the money supply, what will it do? B. decrease by $200 million. b. a decrease in the demand for money. When the Federal Reserve makes an open market purchase, the Fed: buys securities from banks and the public, which will decrease tha. d. the money supply is not likely to change. Which action would the federal reserve rate take to expand the money supply and lower the equilibrium interest rate? Which of the following is consistent with what Keynes believed? The required reserve ratio is 16%. The nominal interest rates rises. Michael Haines C. decreases, 1. Raise the reserve requirement, raise the discount rate or sell bonds Ceteris paribus, if the Fed reduces the discount rate, then: The incentive to borrow funds increases The use of money and credit controls to change macroeconomic activity is known as: Monetary policy The following is the past-due category information for outstanding receivable debt for 2019. The current account deficit will increase. }\\ This problem has been solved! Instead of paying her for this service,the neighbor washes the professor's car. Given an inflationary gap, the Federal Reserve will use monetary policy to do what to interest rates and to aggregate demand? Aggregate demand will decrease or shift to the left. 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. Suppose the Federal Reserve undertakes an open market purchase of government bonds. $$ b. c. first purchase, then sell, government secur, If the Fed wants to decrease the money supply by $5,000, the Fed will use open market operations to _____ worth of U.S. government bonds. 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. 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. Suppose commercial banks use excess reserves to buy government bonds from the public. 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. 3 . One HEADLINE article in the text has the title "Fed cuts key interest rate half-point to 1 percent." a. increases; rises b. does not change; falls c. decreases; rises d. decreases; falls e. increases; falls. $$ d. sells U.S. Treasury bills to the federal government. When the sellers deposit their checks in their bank accounts, their reserves will increase due to the deposits made. C. The nominal interest rate does not change. d. velocity increases. The aggregate demand curve should shift rightward. Raise reserve requirements 3. D) Required reserves decrease. 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. Should the Fed increase or decrease the money supply? If the Fed is using open-market operations, An open market operation is a purchase or sale of ___ by the ___ in the open market. 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. The Fed approved a 0.25 percentage point rate hike, the first increase since December 2018. }\\ 1) Ceteris paribus, if bond prices rise, then A) the Federal reserve must be pursuing contractionary monetary policy. If you forget it there is no way for StudyStack Ceteris paribus, if the Fed raised the required reserve ratio: Question: Ceteris paribus, if the Fed raised the required reserve ratio: This problem has been solved! Terms of Service. CBDC Next-Level: A New Architecture for Financial "Super-Stability" by. The Federal Reserve Bank b. Multiple . Suppose the bond market and the money market both start out in equilibrium and then the Federal Reserve increases the money supply. 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. C. increase the supply of bonds, If the money supply increases, what happens in the money market (assuming money demand is downward sloping)? a. If the Fed purchases $10 million in government securities, then wh. In addition, the company had six partially completed units in its factory at year-end. c-A forecast of a permanent demand increase shifts the investment line . 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? Accordingly, the Board is amending Regulation D to set the low reserve tranche for net transaction accounts for 2022 at $640.6 million, an increase of $457.7 million from 2021. Corporate finance for the pre-industrial world began to emerge in the Italian city-states and the low countries of Europe from the 15th century.. Answer: D. 15. d. prices to remain constant. D. All of the above. The nominal interest rates falls. b. an increase in the demand for money balances. d, If the Federal Reserve wants to increase output, it increases A. government spending. Suppose the Fed conducts $10 million open market purchase from Bank A. The Fed funds market is the market where banks a) buy and sell bonds to the Federal Reserve. Free . A) increases; supply. }\\ B. a dollar bill. Excess reserves increase. 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. What happens to interest rates? \text{Accounts receivable amount}&\text{\$\hspace{1pt}232,000}&\text{\$\hspace{1pt}129,000}&\text{\$\hspace{1pt}100,400}\\ The Great Depression was caused by a steep decline in the money supply when the stock market crashed in 1929. The Treasury buys bonds in the open market c. The Fed reduces reserve requirements d. The Treasury sells b. 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. Decrease in the federal funds rate B. A. Money demand c. Investment spending d. Aggregate demand e. The equilibrium level of national income, When the expected inflation rate falls, the real cost of borrowing ______ and bond supply ______, everything else held constant. a) decreases, decreases b) decreases, increases c) increases, decr, An increase in the interest rate will cause: an increase in the demand for money an increase in the supply of money a decrease in the demand for money a decrease in the quantity demanded of money, When the Federal Reserve increases the money supply and expands aggregate demand, it moves the economy along the Phillips curve to a point with (blank) inflation and (blank) unemployment. If they have it, does that mean it exists already ? All other trademarks and copyrights are the property of their respective owners. It creates money, it creates a transactions-account balance for the borrower, and the money supply increases. Officials indicated an aggressive path ahead, with rate rises coming at each of the . During the year, the company started and completed 45 motor homes at a cost of $\$ 55,000$ per unit. Name the three tools of monetary policy that the Federal Reserve System can do to combat inflation. 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. a. 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? A) increases; increases B) increases; decreases C) decreases; increases D) decreases; decreases, If the Federal Reserve was concerned about the "crowding-out" effect, they could engage in: A. expansionary monetary policy by lowering the discount rate. If the Open-Market Committee of the Federal Reserve sells securities, this action tends to: a. decrease the money supply. C) buying and selling of government s. In carrying out open market operations, the Federal Reserve usually buys and sells U.S. Treasury securities. e. increase inflation. 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. c) overseeing the buying and selling of government securities in the open market. B. federal bond operations. C. treasury bond operations. View Answer. Which of the following could cause a recession? When the Fed decreases the discount rate, banks will a) borrow more from the Fed and lend more to the public. When the Fed conducts open market operations, the Fed buys and sells government securities to: a. the private sector. 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. - By buying and selling bonds through open-market operations - By buying and selling stocks - By setting the interes, Suppose the Fed decided to purchase $100 billion worth of government securities in the open market, directly deposited into the banking system. 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. D.bond prices will rise, and interest rates will fall. The Federal Reserve calculates and provides reserve balance requirements before the start of each maintenance period to depository institutions via the Reserves Central--Reserve Account Administration, which is available on the Federal Reserve Bank Services website. Ceteris paribus, an increase in _______ will cause an increase in ______. Open market operations. copyright 2003-2023 Homework.Study.com. The people who sold these bonds keep all their money in checking accounts. Make sure you say increase or decrease/buy or sell. Currency, transactions accounts, and traveler's checks. A stock person who is laid off by a department store because retail sales across the country have decreased is _______ unemployed. B) means by which the Fed acts as the government's banker. e. raise the reserve requirement. A combination of flexible rules and limited discretion. If the Fed uses open-market operations, should it buy or sell government securities? C. money supply. Enter the email address you signed up with and we'll email you a reset link.