Use the following diagram to añswer Question #22. Figure 3, Money Supply and Money Demand We of eney 1P Maney S Money S MS. UPS MD Quantity of Money, M (Dilons of dollars) In the conduct of U.S. monetary policy, ceteris paribus, which of the following activities by the Fed would be most consistent with the shift in the diagram above? Select one: a. an open market purchase b. a decrease in the required reserve ratio C. an increase in the interest rate the Fed pays on bank reserves held at the Fed d. Quantitative Easing

Use the following diagram to añswer Question #22. Figure 3, Money Supply and Money Demand We of eney 1P Maney S Money S MS. UPS MD Quantity of Money, M (Dilons of dollars) In the conduct of U.S. monetary policy, ceteris paribus, which of the following activities by the Fed would be most consistent with the shift in the diagram above? Select one: a. an open market purchase b. a decrease in the required reserve ratio C. an increase in the interest rate the Fed pays on bank reserves held at the Fed d. Quantitative Easing

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Suppose that the Federal Reserve conducts an open market sale. This is considered monetary policy. In response, the size of the monetary base and the size of the money supply O contractionary; grows; grows by more expansionary: grows; grows by more contractionary; shrinks; shrinks by less O contractionary; shrinks; shrinks by more O expansionary; grows; grows by less
When the Federal Reserve conducts open market operations, it O buys or sells government bonds. increases or decreases the required reserve ratio. O buys and sells foreign currency manipulates of the rate at which it loans to member banks. How will the Fed's policy action change the money supply? Use only the actions corresponding to your choice in the previous part The money sup ply increases The money sup ply decreases Answer Bank The Fed bu vs bonds The Fed sells bonds The Fed buys foreign currency The Fed sells foreign currency The Fed increases the reserve ratio The Fed decreases the reserve ratio The Fed increases the rate at which it lends to member banks The Fed decreases the rate at which it lends to member banks
When the Federal Reserve increase the discount rate of the Fed Fund in the US market. a. Money supply increases b. Money supply decreases c. Irrelevant to Money Supply
Monetary policy: Demand for and supply of money in the money market is shown in diagram below. Th Fed intends to decrease the money supply from the current $60 million. a) How would the Fed use Open Market Operations to achieve this goal? b) If required reserve ratio is set at 3.9% calculate the money multiplier.. c) Using the Open Market Operations, and assuming money multiplier to be 10.15, by how much should should bank reserves change in order to decrease the money supply by $20 million, from $60 million to $40 million? d) Would a successful open market operation increase or decrease the interest rate? e) Briefly explain your answer to part d. INTEREST RATE (Percent) 18 15 12 9 9 3 0 0 20 Money Supply Money Demand 40 60 80 MONEY Dollar Millions 100 120 K
The graph shows the demand curve for bank reserves, RD. The current quantity of reserves supplied is $20 billion. The Fed wants to set the federal funds rate at 4 percent a year. Does the Fed conduct an open market operation and if so, does it buy or sell securities? ... 8- Question Viewer 7- Draw a point on the curve that shows the federal funds rate when the quantity of reserves supplied is $20 billion. Label it 1. The Fed wants to set the federal funds rate at 4 percent a year. Draw a supply of reserves curve that achieves the target. Label it. Draw a point to show the new equilibrium federal funds rate. Label it 2. -... Federal funds rate (percent per year) Q Q 6- 5- 4- 3- 2- 1- RD མ] 0 10 20 30 40 50 60 70 80 Reserves on deposit at the Fed (billions of dollars) >>> Draw only the objects specified in the question.
A central bank carries out a contractionary open market operation *Another way of achieving the same thing as in an open market operation is to changethe banks’ refinancing rate. Explain carefully in which direction this rate would have tochange in order to achieve the same effect as the aforementioned contractionary openmarket operation, and how the banks’ reaction to this change brings about this effect
Suppose the Fed decides to purchase $60 billion worth of government securities on the open market. a. If the reserve ratio is 20 percent, what is the maximum potential change in the money supply? b. Why might the money supply not grow by this much? c. What will the purchase be by the Fed do to intrest rates? Why?
When the Fed sells government securities (bonds), the money supply will ______ . a. first increase and then decrease b. first decrease and then increase c. increase d. decrease
Tightening monetary policy causes interest rates to O none of the other answers are correct. O fall; demand; increase O fall; supply; increase O rise; supply; decrease Orise; demand; decrease and aggregate to
When the Fed sells securities in the open market, the monetary base _______ and the interest rate _______. A. decreases; falls B. increases; rises C. decreases; rises D. increases; falls
9. Read the headline below: CONTINUED RISE IN UNEMPLOYMENT RATE LEADS FEDERAL RESERVE TO INCREASE MONEY SUPPLY Which of these best explains the reason for the Federal Reserve's action? A. to encourage consumers to stop spending money they do not have B. to make it easier for businesses to borrow money for expansion C. to give businesses incentives to decrease their production of goods GO D. to provide more funds for the government-run entitlement programs
O O O O O O O O O O Which one of the following statements is FALSE? Select one: a. The prime bank rate is the rate banks charge their most credit-worthy commercial customers. b. The Fed can influence the supply of federal funds through open market operations. c. "Tight money" policies tend to increase the money supply growth rate. d. The Fed does not directly set the federal funds rate but instead tightly controls the rate through open market operations. e. The prime bank rate in the United States is consistently higher than the federal funds rate. In recessions, tax revenues tend to decline and transfer payments like unemployment insurance and food stamps tend to increase, so these programs... Select one: a. are procyclical. b. make Aggregate Expenditures less c. are automatic stabilizers. d. create budget surpluses during economic downturns. e. increase unemployment.