Module10-Q3-solution-part2

3. Open market operations versus discount loans Consider an expansionary open market operation. Suppose the Federal Reserve buys government securities from the nonbank public. Suppose that the sellers of government securities cash the checks and hold on to the cash. Then, ceteris paribus, bank reserves do not change ▼ currency in circulation increases , and thus the monetary base will increase Suppose now that the Federal Reserve wants to increase the monetary base by increasing bank reserves only. Which of the following actions enables the Fed to achieve its goal? ○ Lend to commercial banks through the term auction facility Lend to the non-banking public at the discount window Require the non-banking public to repay discount loans Buy the government securities exclusively from the non-banking public By lending to commercial banks through the discount window, the Federal Reserve alters the monetary base and thus affects

How does fractional-reserve banking influence the money supply in the United States?     Fractional-reserve banks borrow and store funds from lenders, decreasing the number of physical dollars in circulation.   Fractional-reserve banks issue depositor funds to borrowers, increasing the number of claims made on the same dollars.   Fractional-reserve banks store the entirety of every depositor's funds, limiting the amount of currency in circulation.   Fractional-reserve banks are permitted to print currency, increasing the number of physical dollars in circulation.

Suppose that the Reserve Bank "tightens" monetary policy.  In what order do events occur when this happens? Answer: First: ? Second: ? Third: ? Fourth: ? Select from (the pic attached)

Imagine that you work for OstBank, a fictional European bank, as part of the team that manages repurchase agreements with the European Central Bank (ECB). If the ECB lowers the refinancing rate from 2% to 1%, OstBank will borrow from the ECB. To execute this change, OstBank could v the ECB. The result would be in OstBank's reserves, prompting OstBank to make loans. Because banks making loans lead to deposits, and deposits in the banking system are part of the money supply, a decrease in the ECB's refinancing rate will tend to the money supply in Europe.

The central bank of a country is having trouble with its economy, and the financial market wants to know what you think should be done. The bank cut its policy interest rate to the effective lower bound, which wasn't low enough to stabilize the economy.What would you tell this central bank to do, based on what the Federal Reserve did during the financial crisis of 2007–2009?

Which of the following statements are true?  Holding cash is costly when banks offer high interest rates. TRUE / FALSE An increase in the size of the underground economy increases the circulation of cash. TRUE / FALSE Holding cash is costly when inflation is low. TRUE / FALSE People demand cash only to finance transactions. TRUE / FALSE The demand for money has fallen during the Covid-19 pandemic TRUE / FALSE During times of economic uncertainty people hoard cash. TRUE / FALSE

A bank dealing in foreign currency tells you that the foreign currency will buy you $.80 US dollars. The bank has given you a. a direct quote. b. an indirect quote. c. the official (fixed) rate. d. a forward rate.

One of the main arguments against using Fiscal Policy is the crowding out effect. Suppose the government uses government purchases to stimulate the economy.  a) Explain the crowding out effect in detail using a graph for the bond market, the money market, the foreign exchange market, and the AD SRAS LRAS model. b). Explain quantitative easing? c) If the Fed’s current policy is quantitative easing, do you think that there is a danger of the government’s current fiscal policy being crowded out? Why or Why not? Explanation required for credit.

Which of the following is not true     Large Value Transfer System is an electronic, real time net settlement network     The Bank of Canada implements monetary policy by lending money at the prime rate     LVTS and ACSS are operated by the Canadian Payments Association     The market for settlement balances is where overnight interest rate is determined   Financial innovation has caused     banks to suffer declines in their cost advantages in acquiring funds, although it has not caused a decline in income advantages     banks to suffer a simultaneous decline of cost and income advantages     banks to suffer declines in their income advantages in acquiring funds, although it has not caused a decline in cost advantages     banks to achieve competitive advantages in both costs and income