5. When the Federal Reserve sells Treasury bills to commercial banks, this leads to a(n):A. decrease in the money supply.B. increase in the money supply.C. change of the money supply to zero.D. decrease in the interest rates._6. Assume that your interest rates (from credit cards and personal loans) are tied to the prime rate.If the FED makes an announcement that it will decrease the Federal Funds rate to 0.25% at thebeginning of January 2021, thenA. your interest rates will tripleB. your interest rates will not changeC. your interest rates will increaseD. your interest rates will decrease as well7. If the Federal Reserve authorities were attempting to reduce demand-pull inflation, the properpolicies would be to:A. buy government securities, raise reserve requirements, and raise the discount rate.B. sell government securities, lower reserve requirements, and lower the discount rate.C. sell government securities, raise reserve requirements, and lower the discount rate.D. sell government securities, raise reserve requirements, and raise the discount rate.8. Which of the following actions by the Fed would lead to expansionary monetary policy:A. Purchases of government bonds from banks.B. An increase in the reserve requirement.C. An increase in the discount rate.D. Sales of government bonds to the public.9. Which of the following best describes the cause-effect chain of a restrictive monetary policy?A. A decrease in the money supply will lower the interest rate, increase consumption andinvestment spending, and increase aggregate demand and GDP.B. A decrease in the money supply will raise the interest rate, decrease consumption and investmentspending, and decrease aggregate demand and GDP.C. An increase in the money supply will raise the interest rate, decrease consumption andinvestment spending, and decrease aggregate demand and GDP.D. An increase in the money supply will lower the interest rate, decrease consumption andinvestment spending, and increase aggregate demand and GDP.

Open Market Operation:An open market operation refers to the buying or selling of government…

5. When the Federal Reserve sells Treasury bills to commercial banks, this leads to a(n): A. decrease in the money supply. B. increase in the money supply. C. change of the money supply to zero. D. decrease in the interest rates. _6. Assume that your interest rates (from credit cards and personal loans) are tied to the prime rate. If the FED makes an announcement that it will decrease the Federal Funds rate to 0.25% at the beginning of January 2021, then A. your interest rates will triple B. your interest rates will not change C. your interest rates will increase D. your interest rates will decrease as well 7. If the Federal Reserve authorities were attempting to reduce demand-pull inflation, the proper policies would be to:

5. When the Federal Reserve sells Treasury bills to commercial banks, this leads to a(n): A. decrease in the money supply. B. increase in the money supply. C. change of the money supply to zero. D. decrease in the interest rates. _6. Assume that your interest rates (from credit cards and personal loans) are tied to the prime rate. If the FED makes an announcement that it will decrease the Federal Funds rate to 0.25% at the beginning of January 2021, then A. your interest rates will triple B. your interest rates will not change C. your interest rates will increase D. your interest rates will decrease as well 7. If the Federal Reserve authorities were attempting to reduce demand-pull inflation, the proper policies would be to:

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Assume that the banking system has total reserves of $200 billion. Additionally, assume that the Federal Reserve mandates that required reserves are 25% of checking deposits. Banks may not hold excess reserve and households have no currency. What is the money supply? Select one: a. $600 billion b. $450 billion c. $800 billion d. $300 billion
8 99 Interest rate (percent) 4 2 0 MS1 MS2 E₁ 200 400 600 800 Quantity of money (billions of dollars) MD Starting from an equilibrium at E, in Exhibit 16-2, a rightward shift of the money supply curve from MS, to MS₂ would cause excess: A demand for money, leading people to sell bonds. B supply of money, leading people to buy bonds. supply of money, leading people to sell bonds. demand for money, leading people to buy bonds.
25. A sale of bonds by the Federal Reserve money supply. A) raises; increases B) raises; reduces C) lowers; reduces D) lowers; increases interest rates and the
13. (Question 6 on p.347) Explain the links between changes in the nation's money supply, the interest rate, investment spending, aggregate demand, and real GDP (and the price level). A change in the nation's money supply (achieved by changing reserves in the banking system) will cause an opposite change in the interest rate. A reduction in the money supply will make funds increasingly ( scarce, abundant ) and drive (up, down) their price (interest rate). The interest rate and investment spending are also ( directly, inversely) related. A rising interest rate will make some investments (capital spending projects) unprofitable, so spending on those will (increase, decline ). Investment spending is part of aggregate demand, so they will move together, as will real GDP. A decline in spending (AD) will (increase, reduce ) inflationary pressure (and will ( increase, reduce ) prices if they are downwardly flexible).
6. An economy is facing a recessionary gap and the Federal Reserve decides to engage in expansionary monetary policy. What are the three tools that the Federal Reserve can use to get the money supply to grow and what direction should each take?
1. Which do you think would be more harmful to the economy—an inflation rate that averages 5 percent a year that has a high standard deviation or an inflation rate of 7 percent that has a standard deviation close to zero? 2. Suppose a major bank needs to borrow $20 billion overnight that it cannot obtain from private creditors. The Fed is willing to make a discount loan of $20 billion provided that it will not alter the aggregate supply of reserves to the banking system. How can it do so?
Suppose the income elasticity of money demand is 0.75 and the interest elasticity of money demand is -0.2. By what percentage does real money demand change in each of the following circumstances? a. Income rises 2%. b. The interest rate rises from 4% to 5%. c. Income falls 4%. d. The interest rate falls from 6% to 4%.
Question 6 If the money multiplier is 3.5, a $10 billion increase in the monetary base Select one: a. increases the quantity of money by $35 billion. b. increases the quantity of money by $10 billion. C. increases the quantity of money by $3.5 billion. d. increases the quantity of money by $2.86 billion.
One way that money creation occurs in our current system is when A person deposits a helicopter stimulus check into their savings account at their local bank. The Federal Reserve makes loans directly to borrowers based on their social credit scores. The Federal Reserve decreases the FFR and increases the reserve requirement. 4. Banks stimulate more debt creation making loans to borrowers equal to excess reserves.
4) Listen If the money multiplier decreased from 20 to 4, then the Fed increased the reserve ratio from 5 percent to 8 percent. the Fed increased the fed funds rate from 5 percent to 8 percent. the Fed increased the reserve ratio from 5 percent to 25 percent. the Fed decreased the fed funds rate from 8 percent to 5 percent. Question 30 (1 point) )Listen The FOMC is able to increase the money supply when it buys US government securities. The increase will be larger, the larger is the reserve ratio. buys US government securities. The increase will be larger, the smaller is the reserve ratio. sells US government securities. The increase will be larger, the smaller is the reserve ratio. sells US government securities. The increase will be larger, the larger is the reserve ratio.
9. If the demand for reserves did not fluctuate, the Fed could pursue both a reservestarget and an interest-rate target at the same time.” Is this statement true, false, oruncertain? Explain.
select the correct answer