By using open market operations, the Federal ReserveO a. adjusts the supply AND demand of reserves to keep the federal funds interest rate equal to its target.O b. adjusts the supply of reserves to keep the federal funds interest rate equal to its target.Oc controls banks' demand for reserves, thereby keeping the federal funds rate equal to its target.O d. adjusts the demand of reserves to keep bank rates in line with the federal funds rate target.O e.None of these answers is correct.

Open market operation:- The monetary authority of any nation sells and buys govt bonds and…

By using open market operations, the Federal Reserve O a. adjusts the supply AND demand of reserves to keep the federal funds interest rate equal to its target. O b. adjusts the supply of reserves to keep the federal funds interest rate equal to its target. controls banks' demand for reserves, thereby keeping the federal funds rate equal to its target. O d. adjusts the demand of reserves to keep bank rates in line with the federal funds rate target. O e. None of these answers is correct.

By using open market operations, the Federal Reserve O a. adjusts the supply AND demand of reserves to keep the federal funds interest rate equal to its target. O b. adjusts the supply of reserves to keep the federal funds interest rate equal to its target. controls banks' demand for reserves, thereby keeping the federal funds rate equal to its target. O d. adjusts the demand of reserves to keep bank rates in line with the federal funds rate target. O e. None of these answers is correct.

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 10PA

See similar textbooks

Similar questions

Humongous Bank is the only bank in the economy. The people in this economy have 20 million in money, and they deposit all their money in Humongous Bank. Humongous Bank decides on a policy of holding 100 reserves. Draw a T-account for the bank. Humongous Bank is required to hold 5 of its existing 20 million as reserves, and to loan out the rest. Draw a T-account for the bank after it has made its first round of loans. Assume that Humongous bank is part of a multibank system. How much will money supply increase with that original 19 million loan?
The persons who are laid off when a supermarket closes because the manager did not run the business efficiently are considered to be Select one: O a. frictionally unemployed. b. seasonally unemployed. structurally unemployed. O C. d. cyclically unemployed. marginally unemployed.
Why would a bank prefer making loans by borrowing funds in the fed funds market? Select one: O A. The fed funds rate is less than the interest rate on reserve balances OB. The fed funds market is less regulated than bank reserves O C. Banks need to maintain reserves above the Fed's required reserve ratio O D. Each of these answers is correct Which of the following is (1) calculated with information provided by the Bureau of Economic Analysis, (2) tracks domestic spending on durable goods, non-durable goods, and services, and (3) factors in recent price changes before comparing to an index base? O a. The Consumer Price Index (CPI) O b. The Producer Price Index (PPI) O c. The Personal Consumption Expenditures Price Index (PCEPI) O d. The International Standards Price Index (ISPI)
Assume a banking system where all banks hold target levels of reserves and there is a currency drain. Which of the following would reduce the deposit multiplier? i) Households choose to hold more of their cash outside of banks ii) Banks reduce their target reserves ratio ii) Banks increase their target reserves ratio O a. only i O b. i and ii Oc. i and iii O d. None of the answers offered are accurate O e. only ii
Which of the following represents an action by the central bank designed to increase the money supply? Select one: O a. an increase in the discount rate O b. an increase in the required reserve ratio O .buying government securities O d. a decrease in tax rates
The graph shows the demand curve for reserves in the market for bank reserves. The federal funds target rate is 4 percent. Draw the supply curve of reserves to achieve the federal funds target rate. Label it. Draw a point at the equilibrium in the market for bank reserves. Choose the statement that is incorrect. O A. Banks hold reserves to meet the required reserve ratio and so that they can make payments. OB. The Fed's open market operations determine the demand for reserves. OC. The higher the federal funds rate, the smaller is the quantity of reserves demanded. O D. Bank reserves are costly to hold because they can be loaned in the federal funds market and earn the federal funds rate. Federal funds rate (percent per year) 8.00 7.00- 6.00- 5.00- 4.00- 3.00- RD 2.00+ 75 25 50 100 Reserves on deposit at the Fed (billions of dollars) >>> Draw only the objects specified in the question.
Which entity acts to protect depositors from a bank run by insuring all deposits up to $250,000? O A. the Federal Reserve B. the Department of Justice O C. the FDIC D. the Office of Management and Budget Reset Selection
The Federal Reserve wants to decrease money supply by conducting an open market operation. Which of the following diagrams correctly illustrates the open market operation to decrease money supply? Also, does the interest rate increase or decrease? о о о Federal Reserve Federal Reserve $$$$ Treasury securities $$$$ Treasury securities SSSS Private Bank Private Bank Federal Reserve Private Bank Treasury securities о $$$$ Federal Reserve Private Bank Treasury securities interest rate increases interest rate decreases interest rate increases interest rate decreases
Which of the following statements about the market for reserves is true? The Federal Reserve controls the discount rate, but not the amount of nonborrowed reserves. O The supply curve for reserves is completely controlled by the Federal Reserve. The demand curve for reserves is completely controlled by the Federal Reserve. O The Federal Reserve controls the discount rate, but not the amount of nonborrowed reserves.
Suppose that the reserve requirement is 12.5% and that commercial banks are NOT holding excess reserves. If the Federal Reserve wishes to reduce the money supply by $200 billion, it should conduct an open-market purchase of $16 billion O open-market purchase of $25 billion open-market sale of $16 billion O None of these answers is correct. O open-market sale of $25 billion
When a bank suffers deposit outflows and has no excess reserves, the bank will generally first try to raise the funds by O A. calling in some loans. B. borrowing from the Fed. C. selling some of its securities. D. selling some loans. Suppose that a bank has $80 in checkable deposits, reserves of $15, and a reserve requirement of 10%. Also assume that the the bank suffers a $10 deposit outflow. If the bank chooses to borrow from the Fed to meet its reserve requirement, then the bank would need to borrow $. (Round your response to the nearest two decimal place.)
Before October 2008, if the Fed were to increase the discount rate so that it was much higher than the federal funds rate, eventually reserves would have decreased and the money supply would have decreased. O reserves would have increased and the money supply would have increased. reserves would have decreased and the money supply would have increased. O reserves would have increased and the money supply would have decreased.