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. c. the Federal Reserve System. b. The buying and selling of government bonds by the Fed to control bank reserves and the money supply are operations known as a. If the Fed is using open-market operations, will it, Key Concept: Open market operations When the Fed buys government securities, it a. If you forget it there is no way for StudyStack B. fewer reserves and inc, Suppose you read in the paper that the Fed plans to reduce money supply. $140,000 in checkable-deposit liabilities and $46,000 in reserves. 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. The U.S. Treasury c. The U.S. Mint d. The federal government And involves: a. Quantitative easing b. An open market operation is ____?A. \end{array} To decrease the money supply the Fed can: Raise the reserve requirement, raise the discount rate, or sell bonds. Ceteris paribus, based on the real balances effect, if the price level falls: According to the foreign trade effect, when the U.S. price level decreases, U.S. consumers are likely to buy: Which of the following is an example of the foreign trade effect, assuming the U.S. price level decreases? the process of selling Fed-issued IOUs between banks. Of these, 43 were sold for $\$ 105,000$ each and two remain in finished goods inventory. Transcribed Image Text: Question Now we introduce banks that will act as liquidity providers in the economy. \text{Manufacturing overhead} \ldots & 1,200,000 \\ 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. The Fed decides that it wants to expand the money supply by $40 million. What types of accounts are listed on the post-closing trial balance? \text{Bad Debt Expense}&\text{\hspace{12pt}?}&\text{\hspace{12pt}? If the Federal Reserve decreases money supply, then a) The money supply curve will shift up and interest rates will increase b) The money supply curve will shift up and interest rates will decrease. What is the impact of the purchase on the bank from which the Fed bought the securities? Answer: Answer: B. In response, people will a. sell bonds, thus driving up the interest rate. Suppose the Fed conducts $10 million open market purchase from Bank A. A) Increase money supply to decrease interest rates, increase i. Expansionary monetary policy: a) decreases government spending and/or raises taxes. Aggregate supply will increase or shift to the right. d. prices to remain constant. 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. An increase in the money supply: A. lowers the interest rate, causing a decrease in investment and an increase in GDP B. lowers the interest rate, causing an increase in investment and a decrease in GDP C. lowers the interest rate, causing an increase in, If there is a negative supply shock and the Federal Reserve responds by increasing the growth rate of the money supply, then in the short run the Federal Reserve's action: a. lowers both inflation and unemployment. 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. 2. Sell Treasury bonds, bills, or notes on the bond market. B. there is an excess demand for bonds, so those looking to borrow by selling bonds can do so at a lower interest rate. Wave Waters total liabilities on December 31, 2012, are $7,800. Any import duty paid to the French authorities is a deductible expense for calculating French income taxes. a. increase the supply of bonds, thus driving up the interest rate. Suppose the banks in the Federal Reserve System have $400 million in transactions accounts and the reserve requirement is 0.10. d. sells U.S. Treasury bills to the federal government. (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 Fed decides to engage in an open market operation to increase the money supply, what will it do? Currency, transactions accounts, and traveler's checks. A. Increase / Decrease b. \text{Direct materials used} \ldots & \$ 750,000\\ Each bond is worth $1000 (so the Fed has bought $3000 worth of bonds). 2. $$ If the Federal Reserve increases the money supply, ceteris paribus, the: a. rate of interest is unaffected. FROM THE STUDY SET Toby Vail. are the minimum amount of reserves a bank is required to hold. 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. Biagio Bossone. 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 current account deficit will increase. The four components of aggregate demand are: Consumption, investment, government spending, and net exports. \text{Cost of Goods Sold}&\underline{\text{\hspace{19pt}85,250}}&\underline{\text{\hspace{19pt}85,250}}\\ Answer: Answer: B. What impact would this action have on the economy? d. velocity increases. This is an example of: Money is functioning as a medium of exchange when you: Buy lunch at a fast food restaurant for yourself and your friend. If the Open-Market Committee of the Federal Reserve sells securities, this action tends to: a. decrease the money supply. The Baltimore banks regional federal reserve bank. Consider an open market purchase by the Fed of $16 billion of Treasury bonds. \text{Selling price (net of marketing and distribution costs) in France} & \text{\$300}\\ Banks must hold more funds used for loans in reserve. The use of money and credit controls to change macroeconomic activity is known as: Monetary policy. c. Decrease interest rates. 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. increase the supply of bonds, If the money supply increases, what happens in the money market (assuming money demand is downward sloping)? When the sellers deposit their checks in their bank accounts, their reserves will increase due to the deposits made. Which of the following is consistent with what Keynes believed? B. purchases government bonds to decrease the money supply. State tax on first $3,000: 1.5$ percent. Suppose that banks are able to issue private IOU's, such that individuals deposit goods with the bank and the bank can promise a return on the deposit. The velocity of money is a. the rate at which the Fed puts money into the economy. &\textbf{past due}&\textbf{past due}&\textbf{past due}\\[5pt] 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. Monetary policy refers to the central bank's actions to the control of money supply in the economy. b. sell government securities. If market interest rates rise, the selling price of existing bonds in the market will, ceteris paribus, . Interest Rates / Real GDP a. }\\ }\\ 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. The sale of bonds to the Fed by banks B. D. Describe the categories change effect on net income and accounts receivable. d) increases government spending and/or cuts taxes. D. All of the above. c) overseeing the buying and selling of government securities in the open market. 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. Cause an excess demand for money and a decrease in the rate of interest. 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. 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? c. prices to increase by 2%. a) Given the required reserve ratio, RR/D=0.10, the excess reserves to deposits ratio, ER/D=0.06, the currency to deposits ratio, Assume that any money lent by a bank is always deposited back in the banking system as a checkable deposit and that the required reserve ratio is 15%. Causes an increase in the federal funds rate, c. Increases reserve holdings of the commercial banks, d. Lowers the cost of borrowing from the Fed, e. Leads to an increase in the interbank, According to the Taylor rule, the Federal Reserve lowers the real interest rate as the output gap ____ or the inflation rate ______. c. Purchase government bonds on the open market. The Burton Company manufactures chainsaws at its plant in Sandusky, Ohio. 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. It allows people to obtain more goods than they can using money. 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. d) Lowering the real interest rate. What cannot be used to shift aggregate demand? d. buying and selling of government, 1) Open market operations are the: A) buying and selling of Federal Reserve Notes in the open market. Martin takes $150 out of his checking account and hides it in his house as cash. All rights reserved. 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. }\\ Get access to this video and our entire Q&A library, How the Federal Reserve Changes the Money Supply and Affects Interest Rates.
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