The Fed uses four major tools to control the reserves of banks and the size of the money supply. 1) The Federal Reserve can buy or sell government securities in the open market to change the lending ability of the banking system: (a) buying government securities in the open market from either banks or the public ( increases, decreases ) the excess reserves of banks; (b) selling government securities in the open market to either banks or the public ( increases, decreases ) the excess reserves of banks. 2) The Fed can raise or lower the reserve ratio: (a) raising the reserve ratio ( increases, decreases ) the excess reserves of banks and the size of the monetary (checkable-deposit) multiplier; (b) lowering the reserve ratio (increases, decreases) the excess reserves of banks and the size of the monetary multiplier. 3) The Fed can also raise or lower the discount rate: (a) raising the discount rate ( encourages, discourages) banks from borrowing reserves from the Fed; (b) lowering the discount rate ( encourages, discourages) banks to borrow from the Fed.

The Fed uses four major tools to control the reserves of banks and the size of the money supply. 1) The Federal Reserve can buy or sell government securities in the open market to change the lending ability of the banking system: (a) buying government securities in the open market from either banks or the public ( increases, decreases ) the excess reserves of banks; (b) selling government securities in the open market to either banks or the public ( increases, decreases ) the excess reserves of banks. 2) The Fed can raise or lower the reserve ratio: (a) raising the reserve ratio ( increases, decreases ) the excess reserves of banks and the size of the monetary (checkable-deposit) multiplier; (b) lowering the reserve ratio (increases, decreases) the excess reserves of banks and the size of the monetary multiplier. 3) The Fed can also raise or lower the discount rate: (a) raising the discount rate ( encourages, discourages) banks from borrowing reserves from the Fed; (b) lowering the discount rate ( encourages, discourages) banks to borrow from the Fed.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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1.C Suppose the Federal Reserve buys Treasury Bills and Treasury Bonds in the open market. Compared to a setting without such open market operations, which of the following answers are CORRECT? a) Banks short of reserves end up with the same amount of loans. b) Banks short of reserves end up with less deposits. c) Banks short of reserves end up with less equities. d) The federal funds rate is lower. e) The money supply is lower.
The initial condition of the banking system is as follows: $500 billion in reserve, $4,500 billion in loans and investments, and 5,000 billion in deposits. The required reserve is 10%. The Fed buys $100 billion government securities using open market operation, and lowers the reserve requirement to 5%. The banking system converts 85% excess reserves to loans, but borrowers return only 65% of these funds to the banking system as deposits. What is the maximum amount of loans in the banking system as a result of such Fed operation?
Assume economic growth is weak, reserves are abundant, and the inflation rate has been below the Fed's price stability goal for a significant period of time. Which of the following would best describe an appropriate policy action? a. Lower the target range for the federal funds rate and use open market operations to increase the level of reserves in the banking system. b. Raise the target range for the federal funds rate while simultaneously decreasing the interest on reserve balances rate, overnight reverse repo rate, and discount rate. c. Lower the target range for the federal funds rate and simultaneously decrease the interest on reserve balances rate, overnight reverse repo rate, and discount rate. d. Raise the target range for the federal funds rate and simultaneously increase the interest on reserve balances rate, overnight reverse repo rate, and discount rate.
28) If the required reserve ratio is 10% and the Federal Reserve purchases $50 million in treasury bonds on the open market, how could the money supply be impacted? a) Increase by a maximum amount of $500 million b) Increase by a maximum amount of $50 million c) Decrease by a maximum amount of $500 million d) Decrease by a maximum amount of $50 million 29) What is the most likely outcome of expansionary monetary policy? a) A decrease in the quantity of money, higher interest rates, and increased aggregate demand. b) An increase in the quantity of money, higher interest rates, and increased aggregate demand. c) A decrease in the quantity of money, lower interest rates, and decreased aggregate demand.. d) An increase in the quantity of money, lower interest rates, and increased aggregate demand.
In order to increase the money supply, the Fed can A) Raise the reserve requirement, increase the discount rate, or sell bonds. B) Raise the reserve requirement, increase the discount rate, or buy bonds. C) Lower the reserve requirement, increase the discount rate, or buy bonds. D) Lower the reserve requirement, decrease the discount rate, or buy bonds.
If the Fed wants to increase the money supply, it can decrease the federal funds rate. decrease the tax rate. sell bonds in the open market. increase the reserve requirement.
To increase the money supply, the Federal Reserve could lower the required reserve ratio. conduct an open market sale of Treasury securities. raise the discount rate. raise income taxes.
8) If the reserve requirement on banks is 10 percent, then the money multiplier for the economy is: A) 15 B) 20 C) 1 D) 10 9) Assume that individuals hold no cash and banks hold no excess reserves. The Federal Reserve buys Treasury securities from a bank, and the reserve requirement on banks is 10 percent. As a result of the Federal Reserve's action, the money supply in the economy increases by $5,000. Therefore, the Federal Reserve must have bought _____ of securities from the bank. A) $1000 B) $10 C) $500 D) $100 10) Which of the following institutions insures the deposits in commercial banks, savings banks, and savings and loans institutions? A) National Credit Union Insurance Company B) Federal Reserve C) US Treasury D) Federal Deposit Insurance Corporation THANK YOU SO MUCH FOR HELPING ME!!!!!!
According to Reuters, the People’s Bank of China hasbeen using targeted increases in banks’ reserve requirement ratios (RRR) in recent months. Explain why centralbanks impose reserve requirements for commercial banks.Why do commercial banks try to avoid this requirement?
Assume that banks lend out all their excess reserves and individuals deposit all their money. If the Required Reserve Ratio is .20, what does the Fed have to do to decrease the supply of money by $300 billion? Select one: a. Sell $60 billion worth of government bonds to commercial banks b. Sell $80 billion worth of government bonds to commercial banks c. Sell $200 billion worth of government bonds to commercial banks d. Buy $100 billion worth of government bonds from commercial banks e. Buy $60 billion worth of government bonds from commercial banks
11) Which of the following increases the quantity of money? A) an individual's cash withdrawal from a bank B) an individual's purchase of a government security from the Fed C) the Fed's purchase of a government security D) an increase in the government's budget deficit 12) Open market purchases by the Federal Reserve System (the Fed) A) raise the federal funds rate. B) increase bank reserves. C) occur when the Fed wants to decrease the quantity of money. D) All of the above answers are correct. 13) When the Fed raises the federal funds rate, A) net exports increase. B) the value of the dollar falls on the foreign exchange market. C) the value of the dollar rises on the foreign exchange market. D) consumption increases. 14) If the Fed raises the federal funds rate so that the exchange rate rises, then imports ________ and exports ________. A) increase; increase B) increase; decrease C) decrease; increase D)…
Currently, the Fed does not have complete control of the money supply because the Congress and the Treasury can also make changes to the money supply. government bonds may not be available for purchase when the Fed wants to perform OMO. the Fed does not know where all the U.S. currency is located. the amount of money in the real economy depends on the behavior of depositors and bankers. All of the above are correct.