If the Federal Reserve takes on a policy of monetary restriction, the supply curve for loanable funds will move up and to the left and equilibrium interest rates will fall the demand curve for loanable funds will move down and to the left and equilibrium interest rates will fall the supply curve for loanable funds will move up and to the left and equilibrium interest rates will rise O the demand curve for loanable funds will move up and to the right and equilibrium interest rates will rise none of the above

If the Federal Reserve takes on a policy of monetary restriction, the supply curve for loanable funds will move up and to the left and equilibrium interest rates will fall the demand curve for loanable funds will move down and to the left and equilibrium interest rates will fall the supply curve for loanable funds will move up and to the left and equilibrium interest rates will rise O the demand curve for loanable funds will move up and to the right and equilibrium interest rates will rise none of the above

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter6: Government Influence On Exchange Rates

Section: Chapter Questions

Problem 3ST

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Concept explainers

Functions of the Federal Reserve System

The Federal Reserve System looks after the financial activities and operations of the banking system. It is the apex body that has complete control over the banking regulations. All the guidelines regarding the banking system, money supply, and formulation of the monetary policy come under the purview of the Federal Reserve System. The New York Fed also helps in drafting the monetary policy and supervising the financial system.

Elastic and Inelastic Markets

Measuring the change in percentage of an economic variable with respect to change in a different economic variable is known as elasticity. This change in percentage results in a change in price concerning changes in other factors. In simple terms, when one factor brings a change to another factor, it is called elasticity.

Question

If the Federal Reserve takes on a policy of monetary restriction,
the supply curve for loanable funds will move up and to the left and equilibrium interest rates will fall
the demand curve for loanable funds will move down and to the left and equilibrium interest rates will fall
the supply curve for loanable funds will move up and to the left and equilibrium interest rates will rise
the demand curve for loanable funds will move up and to the right and equilibrium interest rates will rise
none of the above

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To fight inflation, another monetary policy tool the Fed could use is to change the reserve requirement. With the reserve requirements, and as the result, the equilibrium federal goal of curbing inflation, the Fed should funds rate will A increase; drop OB. decrease; rise C. decrease; drop D, increase; rise
Can you help me with this question?
If the Fed buys loans from banks, what is the impact on the Loanable Funds Market? A) Decreases the supply of loanable funds and lowers the interest rate. B) Increases the supply of loanable funds and lowers the interest rate. C) Decreases the supply of loanable funds and raises the interest rate. D) Increases the supply of loanable funds and raises the interest rate.
Suppose that the Fed wants to lower long-term interest rates and buys all the Treasury securities banks hold. Reflect those changes on the balance sheet (commitment to low long term interest rate environment, QE)
Apart from risk components, several macroeconomic factors-such as Federal Reserve (the Fed) policy, federal budget deficit or surplus, international factors, and levels of business activity-influence interest rates. Based on your understanding of the impact of macroeconomic factors, identify which of the following statements are true or false: Statements When the Fed increases the money supply, short-term interest rates tend to decline. When the economy is weakening, the Fed is likely to increase short-term interest rates. During the credit crisis of 2008, investors around the world were fearful about the collapse of real estate markets, shaky stock markets, and illiquidity of several securities in the United States and several other nations. The demand for US Treasury bonds increased, which led to a rise in their price and a decline in their yields. When the economy is weakening, the Fed is likely to decrease short-term interest rates. True False
Under the Pure Expectations Theory, if issuers expect interest rates to increase, O Two statements are correct. O borrowers will generally prefer to issue short-term securities rather than long-term securities. O the corresponding decrease in the demand for long-term funds by borrowers places downward pressure on long-term funds. O Three statements are correct. O there is downward pressure on the yield of short-term funds. O Only one statement is correct. O they will prefer to lock in the present interest rate over a long period of time.
All other things being equal, which of the following would cause interest rates to rise? a. The economy slides into a recession. b. The federal government's budget deficit declines. c. The rate of inflation decreases. d. The Federal Reserve contracts the money supply.
Apart from risk components, several macroeconomic factors—such as Federal Reserve (the Fed) policy, federal budget deficit or surplus, international factors, and levels of business activity—influence interest rates. Based on your understanding of the impact of macroeconomic factors, identify which of the following statements are true or false: Statements True False Countries with strong balance sheets and declining budget deficits tend to have lower interest rates. When the economy is weakening, the Fed is likely to increase short-term interest rates. Long-term interest rates are not as sensitive to booms and recessions as are short-term interest rates. The Federal Reserve Board has a significant influence over the level of economic activity, inflation, interest rates in the United States.
Which of the following statements is incorrect? a. when market rates are changing, the discount rate adjusts immediately. b. money market interest rates tend to respond quickly topeen Federal Reserve open market operations. c. the discount rate may be above or below other money market interest rates at a given point in time.
What is meant by the real risk-free rate of interest? Seleccione una: a. The nominal risk-free interest rate, less the expected inflation. b. The rate actually used in the market, not in textbooks. c. The rate quoted on short-term Treasury bills. d. The opportunity cost of foregoing consumption, representing the rate that must be offered to individuals to persuade them to save rather than consume.
If the Federal Reserve Bank (FRB) announces a change by increasing the Federal Funds rate, this will cause: Group of answer choices A. Bond prices to rise, bond yields to rise C. Bond prices to rise, bond yields to fall B. Bond prices to fall, bond yields to fall D. Bond prices to fall, bond yields to rise
8. Macroeconomic factors that influence interest rate levels Apart from risk components, several macroeconomic factors—such as Federal Reserve (the Fed) policy, federal budget deficit or surplus, international factors, and levels of business activity—influence interest rates. Based on your understanding of the impact of macroeconomic factors, identify which of the following statements are true or false: Statements True False The larger the federal deficit, other things held constant, the higher are interest rates. When the economy is weakening, the Fed is likely to increase short-term interest rates. During recessions, short-term interest rates decline more sharply than long-term interest rates. The Federal Reserve’s ability to use monetary policy to control economic activity in the United States is limited because US interest rates are highly dependent on interest rates in other parts of the world.