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When the Fed decreases the discount rate, banks will a) borrow more from the Fed and lend more to the public. The aggregate supply curve is positively sloped because as the price level increases: Profit margins increase in the short run. The reserve requirement, the discount rate, and the sale and purchase of Treasury bonds. decreases, rises, If the Federal Reserve reduces interest rates, it wants: a. $$ 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. c) overseeing the buying and selling of government securities in the open market. Which of the following is NOT a possible source of last-minute reserves for a private bank? C. The lending capacity of the banking system increases. c. the government increases spending and lowers taxes. The aggregate demand curve should shift rightward. }\\ \text{Income tax expense} \ldots & 100,000 \\ Compute the following for the current year: If the Federal Reserve increases the nominal supply of money, all else equal: a. the demand for money increases. In order to increase sales by one item per month, the monopolist must lower the price of its software by $1 to $49. Required reserves decrease. B. purchases government bonds to decrease the money supply. C. Controlling the supply of money. The VOC was also the first recorded joint-stock company to get a fixed capital stock. d) borrow reserves from the Federal Reserve. 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. Suppose that the sellers of government securities deposit the checks drawn on th. Each bond is worth $1000 (so the Fed has bought $3000 worth of bonds). Ceteris paribus, what will occur if the Fed buys bonds through open-market operations? 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. Make sure to remember your password. C. increase by $290 million. }\\ Your email address is only used to allow you to reset your password. 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. B. taxes. 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. Facility location decisions are significant for an organization because:? If the Fed decides to engage in an open market operation to increase the money supply, what will it do? Find the taxable wages. 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. 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). 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? B. federal bond operations. Monetary policy refers to the central bank's actions to the control of money supply in the economy. Suppose the Federal Reserve buys government securities from commercial banks. What are some basic monetary policy tools used by the Fed? 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. Interest Rates / Real GDP a. If the Federal Reserve increases the money supply, ceteris paribus, the: a. rate of interest is unaffected. ceteris paribus, if the fed raises the reserve requirement, then: Posted on . c) increases government spending and/or cuts taxes. Which of the following is likely to occur if OPEC increases the amount of oil it supplies and domestic energy prices fall, ceteris paribus? 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. B. there is an excess demand for bonds, so those looking to borrow by selling bonds can do so at a lower interest rate. Interest rates typically rise in a recession because the demand for money increases when real income falls. U.S.incometaxrateontheU.S.divisionsoperatingincome40%FrenchincometaxrateontheFrenchdivisionsoperatingincome45%Frenchimportduty20%Variablemanufacturingcostperchainsaw$100Fullmanufacturingcostperchainsaw$175Sellingprice(netofmarketinganddistributioncosts)inFrance$300\begin{matrix} The Fed's decision amounted to a shift to a more cautious period of inflation fighting. \text{Net Credit Sales}&\text{\$\hspace{1pt}1,454,500}&\text{\$\hspace{1pt}1,454,500}\\ B. decreases the bond price and decreases the interest rate. $140,000 in checkable-deposit liabilities and $46,000 in reserves. Should the Fed increase or decrease the money supply? 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.. c. When the Fed decreases the interest rate it p; A. How would this affect the money supply? \end{array} B. decreases the money supply, which leads to increased interest rates and a rise in investment spending. 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%. the process of selling Fed-issued IOUs between banks. $$ During the last recession (2008-09. &\textbf{past due}&\textbf{past due}&\textbf{past due}\\[5pt] Which of the following is likely to cause a leftward shift in the aggregate supply curve, ceteris paribus? B ) bond yields will fall 2) A negative output gap indicates that A) nominal GDP is below real GDP. are the minimum amount of reserves a bank is required to hold. Excess reserves increase. 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? a. increases, rises b. increases, falls c. decreases, falls d. decreases, does not change e. . Otherwise, click the red Don't know box. \text{Total uncollectible? View Answer. a. Ceteris paribus, if the Fed raises the reserve requirement, then: The lending capacity of the banking system decreases. 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? Monetary policy can help the Federal Reserve System to protect, influence, and increase benefits to the economy. Ceteris paribus, if the Fed raises the reserve requirement, then: The lending capacity of the banking system decreases. }\\ d. rate of interest increases.. d. raise the treasury bill rate. Decrease in the federal funds rate B. The sale of bonds to the Fed by the public C. Increases in banks' excess reserves D. Increases in. B. decrease the discount rate. The Great Depression was caused by a steep decline in the money supply when the stock market crashed in 1929. Raise the reserve requirement, increase the discount rate, or . 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). C) Excess reserves increase. Answer the question based on the following balance sheet for the First National Bank. This problem has been solved! Assume that banks use all funds except required, 13. Money supply to decrease b. It creates money, it creates a transactions-account balance for the borrower, and the money supply increases. 3 . Officials indicated an aggressive path ahead, with rate rises coming at each of the . e. raise the reserve requirement. 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. What cannot be used to shift aggregate demand? Multiple . e. increase inflation. In the money market, an excess demand of money will: A. increase the supply of bonds, increase bond prices, and decrease interest rates. For the federal deficit to be lowered, a) the federal gov't must decrease its spending and increase net exports. Price falls to the level of minimum average total cost. (a) Show how t. When the central bank sells government bonds does it do so by applying monetary policies such as expansionary and deflationary policies or do they sell them to specific buyers? 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 required reserve ratio is nine percent, what is the resulting change in checkable deposits (or the money supply) if we assume there are no. The aggregate demand curve should shift rightward. When the Federal Reserve makes an open market purchase, the Fed: If the federal reserve injects $3,000 into the banking system through open market operations, did the federal reserve buy or sell government bonds? d. Conduct open market sales. 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. Conduct open market purchases. Assume that the Fed increases the monetary base by $1 billion when the reserve requirement is 1/7. If Bank A and all the other banks use reserves to purchase only securities, what will happen to deposits in the banking system and how much does it expand? Over the 30-year life of the. Name the three tools of monetary policy that the Federal Reserve System can do to combat inflation. 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 _______ . copyright 2003-2023 Homework.Study.com. b. d. a decrease in the quantity de. For best results enter two or more search terms. That reduces liquidity and slows economic activity. Bob, a college student looking for summer work. 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. In terms of pricing, which of the following is not true for a monopolist? If market interest rates rise, the selling price of existing bonds in the market will, ceteris paribus, . This causes excess reserves to, the money supply to, and the money multiplier to. a) decrease, downward b) decrease, upward c) inc. c. Purchase government bonds on the open market. 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) means by which the Fed acts as the government's banker. c. prices to increase by 2%. Multiple Choice . In order to maintain price stability, the Federal Reserve has decided to engage in monetary restraint. B.bond prices will fall, and interest rates will fall. E.the Phillips curve will shift down. D. The value o, If the nominal interest rate were to increase, then: a. money demand decreases and the price level increases. Expansionary fiscal policy is when a. the government lowers spending and raises taxes. B. In the short run, if the Fed wants to raise the federal funds rate, it: (i) instructs the New York Fed to sell government securities in the open market. Which of the following is NOT a basic monetary policy tool used by the Fed? Sell Treasury bonds, bills, or notes on the bond market. How does it affect the money supply? copyright 2003-2023 Homework.Study.com. C. excess reserves at commercial banks will increase. The fixed monthly cost is $21,000, and the variable cost. The lending capacity of the banking system decreases. (Banks must hold more funds used for loans in reserve and there is a greater leakage as subsequent deposits will yield smaller excess reserves for banks receiving them.) b) Lowering the nominal interest rate. Fiscal policy should be used to shift the aggregate demand curve. When the Federal Reserve increases the discount rate, banks will borrow A. fewer reserves and decrease lending. When you've placed seven or more cards in the Don't know box, click "retry" to try those cards again. Ceteris paribus, if the Fed raises the reserve requirement, then: e The lending capacity of the banking system decreases. B. influence the discount rate. b. 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. Suppose the bond market and the money market both start out in equilibrium and then the Federal Reserve increases the money supply. 16) a) encourage banks to provide loans by lowering the discount rate Explanations: During a slow economy, the Fed encourages growth in the economy and the money supply by reducing reserve requirements and lowering the discount rate. The number and relative size of firms in an industry. &\textbf{0-60 days}&\textbf{61-120 days}&\textbf{Over 120 days}\\ If the Federal Reserve System buys government securities from commercial banks and the public: a. the money supply will contract. (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. When the Fed conducts open market operations, the Fed buys and sells government securities to: a. the private sector. Suppose the banks in the Federal Reserve System have $400 million in transactions accounts and the reserve requirement is 0.10. \text{Cost of Goods Sold}&\underline{\text{\hspace{19pt}85,250}}&\underline{\text{\hspace{19pt}85,250}}\\ \text{U.S. income tax rate on the U.S. division's operating income} & \text{40\\\%}\\ If the Fed sells government bonds, this will: 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. The people who sold these bonds keep all their money in checking accounts. B. Conduct open market sales of government bonds. \text{Total per category}&\text{?}&\text{?}&\text{? Annual gross pay of $18,200. You can also use your keyboard to move the cards as follows: If you are logged in to your account, this website will remember which cards you know and don't know so that they 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.