If the Bank of Canada sells Government of Canada Bonds in the open market, what will happen? O a. The money demand will shift to the right O b. The interest rates will fall O . The monetary base and the money supply decrease O d. The monetary base and the money supply increase
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- A purchase of U.S. government securities by the Fed causes A. a multiple contraction of the money supply because deposits fall by more than the amount of the securities purchased. B. a contraction of the money supply equal to the amount of the securities because all other transactions occur within the banking system. C. an expansion of the money supply equal to the amount of the securities because all other transactions occur within the banking system. D. a multiple expansion of the money supply because the required reserve ratio is less than oneExplain which interest rate sets the upper limit on the federal funds rate. The upper limit on the federal funds rate is the _______ because _______. A. discount rate; the discount rate must be 1 percent higher than the federal funds rate B. interest on reserves rate; a bank will borrow reserves only if the federal funds rate is less than the interest on reserves rate C. discount rate; a bank will borrow reserves only if the federal funds rate is less than the discount rate D. long-term real interest rate; the loanable funds market determines the federal funds rate rangeConsider the model of supply and demand for central bank money. Assumethat there there are commercial banks. Suppose that people hold 20% of their moneyin currency and 80% of their money in deposits. The central bank sets the reserve-todeposit ratio at 10%. In the first period, the central bank increases the supply of moneyby $200, buying bonds through Open-Market Operations. Use this information to answerthe following questions:(a) For the second period (after the central bank has injected $200 in theeconomy), calculate: (i) the demand for currency, (ii) the amount of deposit held atthe commercial banks, (iii) the demand for reserves held at the central bank, and(iv) the demand for the high-powered money. How much is the additional moneysupply created at the end of the second period?2(b) How much is the additional money supply created at the end of the thirdperiod?(c) As time continues, additional money supply will be created. Calculatethe total increase in the money supply as a…
- 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.Consider the following table: Interest rate % Asset demand for Money supply $460 460 220 460 220 460 220 460 The transactions demand for money in this money market would graph as a: 2 4 6 8 Transaction demand for money 10 vertical line $220 220 horizontal line money $300 280 260 240 220 Oline sloping downward and to the right single point line sloping upward and to the rightMacmillan Learning b. A central bank reduces the rate of interest that it charges to commercial banks on loans. expansionary c. The Federal Reserve purchases bonds on the open market. O expansionary d. The Federal Reserve decreases the discount rate. expansionary O contractionary expansionary contractionary contractionary e. A central bank increases the percentage of deposits that banks are required to keep in vaults. O contractionary.
- Which of the following represents an action by the central bank designed to decrease the money supply? Select one: a. a decrease in the required reserve ratio O b. buying government securities an increase in the discount rate C. d. a increase in tax ratesWhich of the following policies would the Federal Reserve most likely use if the economy was suffering from high inflation? O Decrease the required reserve rate O Buy bonds in the open market O Decrease the interest rate the Fed pays on bank reserves O Raise the discount rateIf the Fed sells the U.S. $200 million in government bonds, the total money supply will: O not change. decrease by more than $200 million. O decrease by less than $200 million but more than $0 million. O decrease by exactly $200 million.
- Trevor goes to the ATM machine and withdraws $500 in cash. How will this affect the monetary base? Select one: O a. The monetary base will decline as bank reserves fall. O b. The monetary base will increase with the increase in currency in circulation. O c. The monetary base will increase by less than the size of the withdrawal as the increase in the currency in circulation will not be completely offset by a decrease in bank reserves. O d. The monetary base will remain unchanged with the increase in the currency in circulation being exactly offset by a decrease in bank reserves.1. If the demand for money curve shifts from Md1 to Md0 the equilibrium interest rate will.. Increase from 5% to 10% Decrease from 7% to 5% Increase from 5% to 7% Remain at 7% 2. If the demand for money curve shifts from Md1 to Md0 and the interest rate remains at 5% there will be An equilibrium in the money market An excess demand for money An equilibrium in the bond market An excess supply of moneySelect TWO true statements about money. Base money is equal to cash plus commercial bank reserves with the central bank O b. Cash is a liability of the central bank O c. If a commercial bank makes a loan and credits the borrower's current account, then base money increases O d. Commercial bank reserves with the central bank appear as a liability in their balance sheets a.