D. Describe the categories change effect on net income and accounts receivable. \text{Bad Debt Expense}&\text{\hspace{12pt}?}&\text{\hspace{12pt}? If market interest rates rise, the selling price of existing bonds in the market will, ceteris paribus, . To manage earnings more favorably, Elegant Linens considers changing the past-due categories as follows. Name the three tools of monetary policy that the Federal Reserve System can do to combat inflation. B) The lending capacity of the banking system decreases. c) not change. c. reduce the reserve requirement. B. excess reserves at commercial banks will decrease. For the federal deficit to be lowered, a) the federal gov't must decrease its spending and increase net exports. b. What fiscal policy tools are used to shift the aggregate demand curve? Ceteris paribus, if the reserve requirement is decreased to 0.05, then excess reserves will . B. Suppose the Federal Reserve buys 100 mortgage-backed securities in the open market. A. decrease, downward B. decrease, upward C. increase, downward D. increase, If inflation begins to rise rapidly, which step is the Federal Reserve likely to take? Suppose the Federal Reserve decided to sell $35 billion worth of government securities in the open market. B. decrease by $200 million. }\\ Ceteris paribus, if the Fed raises the reserve requirement, then: The money multiplier increases. B. an exchange between a private bank and the Federal Reserve where the Fed buys or sells government bonds to private banks. Ceteris paribus, an increase in _______ will cause an increase in ______. Conduct open market sales of government bonds. What is meant by open market operations? A. decreases; decreases B. decreases; increases C. increases; decreases D. increases. 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. \text{Total per category}&\text{?}&\text{?}&\text{? The Burton Company manufactures chainsaws at its plant in Sandusky, Ohio. Open market operations c. Printing mo. d. equilibrium interest rate rises e. demand for money curve shifts leftward, 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}]. The Fed is most likely to do this by: A. purchasing government bonds from the public B. selling government bonds to the public C. selling government bonds to the treasury D. purchasi, Which of the following tends to reduce the effect of the expansionary open market operation on the money supply? What types of accounts are listed on the post-closing trial balance? We start by assuming that there is no reserve requirement or lending by the Central Bank. The use of money and credit controls to change macroeconomic activity is known as: Monetary policy. 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. b. means by which the Fed supplies the economy with currency. c. Increase the required reserve, Suppose the Federal Reserve s trading desk buys $500,000 in T-bills from a securities dealer who then deposits the Fed's check-in Best National Bank. c) Increasing the money supply. b. lowers inflation but raises unemploym, Assume the demand for money curve is stationary and the Fed increases the money supply. Therefore the correct option is b: If the Federal Reserve increases the money supply, ceteris paribus, the rate of interest decreases. 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. 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. Assume the reserve requirement is 5%. 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. An open market operation decreases the money supply when the Federal Reserve a. sells bonds to banks, which increases bank reserves. 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. Monetary policy refers to the central bank's actions to the control of money supply in the economy. While those goals were articulated in 1977, 2 the approach and tools used to implement those objectives have changed over time. The Fed decides that it wants to expand the money supply by $40 million. If the Fed uses open-market operations, should it buy or sell government securities? c. Decrease interest rates. Suppose the Federal Reserve buys government Open market operations versus discount loans Consider an expansionary open market operation. Is this an example of fiscal policy or monetary policy? This causes excess reserves to, the money supply to, and the money multiplier to. "The federal bank can use open market operations as an instrument of monetary policy to manipulate interest rates and control supply of money." b. an increase in the demand for money balances. Instead of paying her for this service,the neighbor washes the professor's car. E. discount rate operations. 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.. b. the same thing as the long-term growth rate of the money supply. Then click the card to flip it. How will the lending capacity of the banking system be affected if the reserve requirement is 5 percent? 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. d. the average number of times per year a dollar is spent. If the Federal Reserve wants to decrease the money supply, it should: a. b. the price level increases. The Fed's decision amounted to a shift to a more cautious period of inflation fighting. B. If you knew the answer, click the green Know box. Toby Vail. Which of the following is NOT a possible source of last-minute reserves for a private bank? III. C. $120,000 in checkable-deposit liabilities and $32,000 in reserves. The fixed monthly cost is $21,000, and the variable cost. 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. Decrease the price it asks for the bonds. Your email address is only used to allow you to reset your password. Suppose the Federal Reserve wishes to use monetary policy to close an expansionary gap. c. first purchase, then sell, government securities. c. the government increases spending and lowers taxes. 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. B. decrease the discount rate. The nominal interest rates falls. b) borrow reserves from the public. Suppose the banks in the Federal Reserve System have $400 million in transactions accounts and the reserve requirement is 0.10. Which of the following lends reserves to private banks? 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.bond prices will rise, and interest rates will fall. Which of the following is NOT a basic monetary policy tool used by the Fed? Would the effect on aggregate demand be larger if the Federal Reserve held the money supply constant in response or if the Fed were committed to maintaining a fixed interest rate? What are some basic monetary policy tools used by the Fed? Currency, transactions accounts, and traveler's checks. What is the impact of the purchase on the bank from which the Fed bought the securities? (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 price of computers falls during a period when the average price level remains constant, which of the following has occurred? C. the price level in the economy will rise, thus i. 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. d. the demand for money. Personal exemptions of$1,500. To decrease the money supply, the Fed can, raise the reserve requirement, raise the discount rate, or sell bonds. 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. $$ You would need to create a new account. b. Suppose that the sellers of government securities redeem these checks drawn on the New York Fed for currency. \begin{array}{l r} The change is negative it means that excess reserve falls by -100000000 or 100 million. 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. Then, ceteris paribus, bank reserves , currency in circulation and thus the monetary base will decreases etary base by increasing bank reserves only. Cause a reduction in the dem. Which of the following is likely to occur if OPEC increases the amount of oil it supplies and domestic energy prices fall, ceteris paribus? When you've placed seven or more cards in the Don't know box, click "retry" to try those cards again. Multiple . c) decreases, so the money supply increases. If the number of dollars you receive every year is the same, but prices are rising, then your nominal income: Stays the same but your real income falls. 1. One HEADLINE article in the text has the title "Fed cuts key interest rate half-point to 1 percent." U.S. goods are less expensive for Americans so they buy fewer imports and more domestic goods. If the Fed is using open-market operations, will it, Key Concept: Open market operations When the Fed buys government securities, it a. Suppose the Fed conducts $10 million open market purchase from Bank A. &\textbf{past due}&\textbf{past due}&\textbf{past due}\\[5pt] d. decrease the discount rate. Match the terms with definitions. 41. B. . If the Fed decides to engage in an open market operation to increase the money supply, what will it do? Ceteris paribus, if the Fed reduces the reserve requirement, then: A. a. higher, higher b. higher, lower c. lower, higher d. lower, lower, When lots of people put their money into bonds, the demand for money and the interest rate on bonds. c. commercial bank reserves will be unaffected. Key Points. Patricia's nominal annual income in 2009 was $60,000. To see how well you know the information, try the Quiz or Test activity. Previous question Next question 1) Ceteris paribus, if bond prices rise, then A) the Federal reserve must be pursuing contractionary monetary policy. Aggregate supply will increase or shift to the right. Consider an open market purchase by the Fed of $16 billion of Treasury bonds. \begin{array}{c} Consider an expansionary open market operation. Make sure you say increase or decrease/buy or sell. 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. All other trademarks and copyrights are the property of their respective owners. Which of the following is likely to cause a leftward shift in the aggregate supply curve, ceteris paribus? How does it affect the money supply? The result will be a in the money market and a in the bond market, which will push bond prices and interest rates will unti, Starting from a monetary equilibrium condition, an increase in the money supply A. increases the bond price and increases the interest rate. b. increase the supply of bonds, thus driving down the interest rate. 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? (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? Which of the following is likely to occur if people reduce their spending because they are worried about an economic downturn, ceteris paribus? 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. The shape of the curve determines the impact of an aggregate demand shift on prices and output. b. decrease, upward. On October 24, 1929, the stock market crashed. Ceteris paribus, if the reserve requirement is decreased to 0.07, then excess reserves will increase by: $3 million. The velocity of money is a. the rate at which the Fed puts money into the economy.