Open market operations conducted by central banks involve: a) Buying and selling government securities in the openmarket b) Setting interest rates for consumer loans c) Insuring bank deposits d) Regulating credit card transactions

Open market operations done by the central bank involves open market buying and selling of…

Answered: Open market operations conducted by…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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From an economics standpoint, the main benefit of a healthy banking industry is the fact that banks themselves make a tremendous profit, allowing the owners of banks as well as their employees to have high incomes. banks force entrepreneurs to pay high interest rates, which contributes to solving the problem of wealth inequality. banks are able to minimize asymmetric information and adverse selection problems, which allows them to transfer idle funds to more productive ends in a cost-efficient manner. private banks help keep inflation under control.
Would the maximum amount of new bank loans that a commercial bank can make be different when receiving a discount loan from the central bank of $1 million versus receiving a deposit of $1 million? Explain why or why not. Thanks.
Identify regulators in sectors apart from financial services, that should be involved in the Central Bank’s Fintech Regulation Committee. Motivate why these regulators .should be involved.
In a less-developed economy, cattle is widely accepted as payment for goods and services. Nearly all goods and services are priced in terms of cattle; however, cows vary in quality, become less valuable with age, and are difficult to move over long distances. Which of the following functions of money do cattle provide? Select the two correct answers. portability uniformity medium of exchange unit of account store of value
If the U.S. government has easy (cheap) access to foreign savings, through what mechanism will crowding out occur? interest rates current taxes future taxes money supply
Which of the following describe a common cause of bank panics? Check all that apply. Potential buyers of the assets of a bank, incorrectly rumored to be distressed, may suspect the assets to be of poor quality. Rumors that a bank is in financial trouble spread easily. Bank regulators are bureaucrats who do not keep up with real-world banking issues. Which of the following are reasons why bank panics were largely eliminated after 1933? Check all that apply. The shadow banking system has grown larger than the regular banking system. The Federal Reserve ("the Fed") stands ready to inject reserves into the system more quickly in a crisis. The Fed and other government agencies continuously monitor the financial condition of banks.
Which of the following will limit the expansion of the money supply following a new deposit? A strong demand for new loans A re-depositing of all loan proceeds People hanging onto currency in private safes outside of commercial banks Failure of banks to voluntarily hold excess reserves
The banking industry A) should have an efficiency advantage in gathering information that would eliminate the need for the money markets. B) exists primarily to mediate the asymmetric information problem between saver-lenders and borrower-spenders. C) is subject to more regulations and governmental costs than the money markets. D) all of the above are true. E) only A and B of the above are true.
The main functions of the financial system include: Provide a means of making payments. Prepare to sacrifice some income to avoid uncertainty. Assist borrowing and lending. All of the above
An open-market purchase of government securities by the Fed will: Multiple Choice increase bank reserves, and the money supply will increase. decrease bank reserves, and the money supply will increase. increase bank reserves, and the money supply will decrease. decrease bank reserves, and the money supply will decrease.
The central bank buys $10,000 worth of bonds in the open market from Elaine, who deposits the proceeds in her checking account at MSM Bank. The required reserve ratio is 5%. (a) What is the amount by which MSM Bank’s liabilities have changed? Explain. (b) Calculate the change in required reserves for MSM Bank. Show your work. (c) What is the dollar value of the maximum amount of new loans MSM Bank can initially make as a result of Elaine’s deposit? Explain. (d) Based on the central bank’s open-market purchase of bonds, calculate the maximum amount by which the money supply can change throughout the banking system. Show your work. (e) How will the change in the money supply in part (d) affect aggregate demand and the price level in the short run? Explain.
The Bank of Canada wishes to reduce the money supply, implementing a tight monetary policy. Which of the following is NOT consistent with this goal? (A) Reducing the reserve requirement for banks. (B) Selling government bonds. (C) Increasing the target for the overnight rate. (D) Printing less currency

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Open market operations conducted by central banks involve: a) Buying and selling government securities in the open market b) Setting interest rates for consumer loans c) Insuring bank deposits d) Regulating credit card transactions