1. Assume the Fed funds rate is initially on target. The demand for reserves by commercial banks increases by $million 2. Households receive allowances from the government account held at the Federal Reserve for $million 7. Which of the following statements is correct? If the Federal Reserve wants to keep the Fed funds rate on target, it must ________ through its the open market operations $million _____ .

1. Assume the Fed funds rate is initially on target. The demand for reserves by commercial banks increases by $million 2. Households receive allowances from the government account held at the Federal Reserve for $million 7. Which of the following statements is correct? If the Federal Reserve wants to keep the Fed funds rate on target, it must ____ through its the open market operations $million _ .

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter21: The Monetary System

Section: Chapter Questions

Problem 5CQQ

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If the Fed makes an open market sale of $1 million of securities to a bank, how do the bank's reserves and excess reserves change? How do bank deposits and the quantity of money change? If the Fed makes an open market sale of $1 million of securities to a bank, the bank's reserves _______. Excess reserves _______. A. increase; increase B. decrease; decrease C. increase; decrease D. decrease; increase Bank deposits _______ and the quantity of money _______. A. increase; decreases B. increase; increases C. decrease; increases D. decrease; decreases
Which of the following is one of the Fed's policy tools? One of the Fed's policy tools is _______. A. the discount rate, which is the interest rate at which the Fed stands ready to lend reserves to commercial banks B. the required reserve ratio, which equals 3 percent on checkable deposits and 10 percent on savings deposits C. the open market operations, which are purchase of government securities from the government D. the monetary base, which is the sum of coins and Federal Reserve notes
The reserve requirement is 10%. Suppose that the Fed purchases $50,000 worth of U.S. government securities from a bond dealer, electronically crediting the dealer's deposit account at Reliable Bank. Which of the following correctly describes the immediate effect of this transaction? A. The required reserves of Reliable Bank increase by $50,000. B. The total reserves of Reliable Bank increase by $50,000. C. Reliable Bank can make $50,000 in new loans. D. The excess reserves of Reliable Bank increase by $50,000. -ம்
If the Fed decides to leave the federal funds rate target range unchanged, we would expect _______. A. deflation to occur and the unemployment rate to increase B. the recessionary gap to increase C. potential GDP to increase and the full-employment quantity of labor to increase D. inflation to increase and the unemployment rate to decrease
If the Fed decides to sell U.S. Treasury bonds on the open market, how will the money supply and interest rates be affected? a.Money supply unchanged + interest rates increase b.Money supply decrease + interest rates decrease c.Money supply increase + interest rates increase d.Money supply decrease + interest rates increase e.Money supply increase + interest rates decrease
If the COVID-19 recovery continues and inflation starts to rise, what effect would a decision by the Fed to not change the federal funds rate target range have on the U.S. economy? If the Fed decides to leave the federal funds rate target range unchanged, we would expect _______. A. deflation to occur and the unemployment rate to increase B. the recessionary gap to increase C. potential GDP to increase and the full-employment quantity of labor to increase D. inflation to increase and the unemployment rate to decrease Thanks!
Commercial banks have a target reserve ratio of 30 percent and there is a cash drain of 20 percent. If the Central Bank issues an additional 12 dollars of currency the money supply will increase by _____________ dollars.
How did the Fed's monetary policy change during the Great Recession? During the Great Recession, the Fed _______. A. conducted daily open market operations to hit the federal funds rate target B. engaged in quantitative tightening C. conducted monetary policy with limited reserves D. conducted monetary policy with ample reserves
Assume that the reserve requirement is 16 percent. Also assume that banks do not hold excess reserves and there is no cash held by the public. The Federal Reserve decides that it wants to contract the money supply by $75 million using open-market operations. In order to accomplish its goal, the Fed needs to --(insert buy or sell)-- $______ million worth of bonds.
60) Use the money demand and money supply model to show the money market in equilibrium with an interest rate of 5 percent and the quantity of money of $800 billion. Suppose the Federal Reserve increases the money supply to $850 billion. At the previous equilibrium interest rate of 5 percent, will households and firms now be holding more money or less money than they want to hold, and will they be buying or selling short-term financial assets? At the new equilibrium interest rate, households and firms will desire to hold the entire $850 billion of the money supply. What causes households and firms to want to hold the additional $50 billion of the money supply? 61) Use the money demand and money supply model to show graphically and briefly explain the effect on the interest rate if real GDP increases. 1
23. What is an implication of the neutrality of money in the long run? The economy's level of potential output will adjust to accommodate any change in the money supply. Changes to the money supply have no effect on either the price level or real GDP. In response to any change in the money supply, the demand for money will adjust to cancel out its effects on all macroeconomic variables. Changes to the money supply never have any effect on real GDP. In response to any change in the money supply, the economy's adjustment process will bring Y back to Y*, which is unaffected by the change in the money supply.
11. Which policy tool involves the federal reserve setting a short-term interest rate to lend directly to financial institutions? a. The fed funds rate b. The discount rate c. The interest rate paid on excess reserves d. The rate of required reserves 12. Suppose the federal reserve announces a policy of purchasing short-term bonds from the financial system. This policy is an example of a. Expansionary monetary policy through open market operations designed to decrease the federal funds rate b. Contractionary monetary policy through open market operations designed to increase the federal funds rate