Explain how each of the following situations changes the quantity of money (money supply) in the economy, based on its computed change in money supply. The Federal Reserve System buys bonds. (Answer) The Federal Reserve System auctions credit. (Answer) The Federal Reserve System raises the discount rate. (Answer) The Federal Reserve System raises the reserve requirement. (Answer)

Explain how each of the following situations changes the quantity of money (money supply) in the economy, based on its computed change in money supply. The Federal Reserve System buys bonds. (Answer) The Federal Reserve System auctions credit. (Answer) The Federal Reserve System raises the discount rate. (Answer) The Federal Reserve System raises the reserve requirement. (Answer)

Economics (MindTap Course List)

13th Edition

ISBN:9781337617383

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter13: The Federal Reserve System

Section: Chapter Questions

Problem 5QP

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The Federal Reserve manages the amount of money in circulation by buying or selling U.S. Treasury securities, usually Treasury bills. The increase or decrease of money in circulation helps the Fed to control inflation or deflation. This has an effect on your disposable income. Research the Federal Reserve system and money supply, then answer the following questions. Under what conditions would the Fed choose to decrease the money supply, how would it do so, and what is the goal of doing so? How does the Fed factor inflation into its actions?
A problem that the Fed faces when it attempts to control the money supply is that the Fed can only control excess reserves but not total reserves. the Fed has to get the approval of the U.S. Treasury Department whenever it uses any of its monetary policy tools. the Fed does not have a tool that it can use to change the money supply by either a small amount or a large amount. the Fed does not control the amount of money that households choose to hold as deposits in banks.
Question 10 Which of the following are true about money? There may be more than one answer. a) Money supply only includes the bills and coins printed by the CB (Bank of England). b) Private banks have no effect on money supply. c) The CB usually controls money supply through the discount rate. d) The CB usually controls money supply by printing and destroying cash.
What steps can the Federal Reserve take to increase the money supply? a) The Federal Reserve can reduce personal income tax rates to encourage households to spend more money b) The Federal Reserve can require all banks to close by 4:00 pm on weekdays and remain closed on weekends. c) The Federal Reserve can increase reserves requirements for banks d) The Federal Reserve and raise the discount e) The Federal Reserve can buy US Treasury securities e) The Federal Reserve
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CENGAGE | MINDTAP Homework (Ch 21) The following graph represents the money market in a hypothetical economy. As in the United States, this economy has a central bank called the Fed, but unlike in the United States, the economy is closed (that is, the economy does not interact with other economies in the world). The money market is currently in equilibrium at an interest rate of 6% and a quantity of money equal to $0.4 trillion, as indicated by the grey star. 8.0 7.5 7.0 6.5 PRICE LEVEL 6.0 5.5 5.0 4.5 4.0 0 Money Demand 0.1 Money Supply 02 0.3 04 0.5 0.6 0.7 MONEY (Trillions of dollars) 0.8 New MS Curve ++ Suppose the Fed announces that it is lowering its target interest rate by 75 basis points, or 0.75 percentage point. To do this, the Fed will use open- market operations to the money by the public. New Equilibrium Use the green line (triangle symbol) on the previous graph to illustrate the effects of this policy by placing the new money supply curve (MS) in the correct location.…
The following diagram represents the money market in the United States, which is currently in equilibrium. INTEREST RATE (Percent) 6.0 5.5 5.0 4.5 4.0 3.5 3.0 2.5 2.0 0.6 Money supply 0.7 Money demand 0.8 0.9 1.0 11 1.2 QUANTITY OF MONEY (Trillions of dollars) 1.3 Money demand Money supply Suppose the Federal Reserve announces that it is lowering its target interest rate by 100 basis points, or 1%. It would achieve this by the Shift either the money supply curve or the money demand curve, or both, to illustrate on the graph the effects of this policy. The sequence of events that results in a new equilibrium interest rate, after the Fed makes the change you selected, may be described as follows: Because there is money in the financial system, the quantity of interest-bearing financial assets such as bonds demanded sell the bonds. This process continues until the new which means that bond issuers equilibrium interest rate is achieved.
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The supply curve in the graph represents the money supply, whereas the demand curve represents money demand. The value of money on the graph represents I/P, where P is the price level. Use the graph to answer the question. Suppose that the government decided to print money. Show what happens on the graph by moving the corresponding curve or curves. Value of money 1.0 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0.0 0 1 2 Supply 3 4 5 6 Quantity of money 7 8 Demand 9 10 What happens to the price level when the government increases the money supply in the graph? not enough information to determine decreases increases no change
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What shifts on the graph provided? 1st Blank options are greater or less 2nd Blank options are increase or decrease 3rd Blank options are buy or sell 4th Blank options are have to offer higher or can offer lower 5th Blank what's the interest rate?
41) The current chairman of the Federal Reserve System is A) Milton Friedman. B) Alan Greenspan. C) President Obama. D) Ben Bernanke. 42) The chairman of the Federal Reserve's Board of Governors A) controls the agenda of the Federal Open Market Committee meetings. B) is the main point of contact between the Fed and the President of the U.S. C) receives frequent background briefings on monetary policy issues from a large staff of economists and technical experts. D) All of the above answers are correct. 43) Most of the day-to-day power in monetary policy decisions lies with A) the President of the United States B) the Senate Banking Committee C) the chairman of the Board of Governors D) large commercial banks 44) On the Fed's balance sheet, assets include A) depository institutions deposits at the Federal Reserve and loans to depository institutions. B) U.S. government securities and loans to depository institutions. C)…