If the Fed engages in open market operations to expand the economy, it will O Increase the money supply, causing the interest rate to fall and increasing investment activity. Decrease the money supply, causing the interest rate to rise and decreasing investment activity. Increase money demand, causing the interest rate to fall and increasing investment activity.
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- The economy grows (GDP increases) but the central bank moves to keep interest rates constant. Select one: O a. money demand decreases, money supply is unchanged and interest rates decrease O b. money demand increases, money supply is unchanged and interest rates increase 1O c. money demand decreases, money supply increases and interest rates remain unchanged O d. money demand increases, money supply decreases and interest rates remain unchanged money demand increases, money supply is unchanged and interest rates is unchanged O e.The changes in bank regulations expand the availability of credit cards so people need to hold less cash. Select one: O a. money supply decrease, money demand decrease, interest rate increase O b. money supply increase, money demand unchanged, interest rate decrease O c. money supply increase, money demand increase, interest rate decrease O d. money supply unchanged, money demand decrease and interest rate decrease O e. money supply decrease, money demand unchanged, interest rate increaseThe economy recently experienced an increase in the number of tourist arrivals, increasing income throughout the island. Select one: O a. money supply increase, money demand increase, interest rate decrease O b. money supply unchanged, money demand increase, interest rate increase Oc. money supply unchanged, money demand decrease and interest rate decrease O d. money supply increase, money demand unchanged, interest rate decrease O e. money supply decrease, money demand unchanged, interest rate increase
- During a period of rapid inflation the central bank increases the reserve requirement. Select one: O a. money supply increase, money demand increase, interest rate decrease O b. money supply decrease, money demand unchanged, interest rate increase Oc. money supply increase, money demand unchanged, interest rate decrease O d. money supply decrease, money demand decrease, interest rate increase O e. money supply unchanged, money demand decrease and interest rate decreaseTrevor 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.11. People view cell phone and its charger as complements to one another. If the price of cell phone increases, economists would expect: O The demand for charger will not change. O The demand for charger to increase. O The quantity of cell phone demanded to increase O The demand for charger to decrease. 12. Which one is not the role of the Fed? O The Fed also acts as a bank to the American citizens with net wealth is larger than 10 million dollar. O The Fed also acts as a bank to other banks by clearing checks, making electronic payments, and providing the currency that American's need and use every day. O The Fed also helps to supervise and regulate the nation's banks and works to promote a stable financial system for consumers, communities, and businesses The Fed implements monetary policies that promote maximum employment and m stable prices.
- The central bank sold existing government securities in an open market operation. Which of the following changes is the most likely result of this action? Select one: a. The reserve requirement decreases. O b. The nominal interest rate increases. O c. The discount rate increases O d. Bank reserves increase.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.Explain what will happen to the money multiplier process if there is an increase in the reserve requirement? O A. An increase in the reserve requirement means that banks will be less likely to have your money when you demand it, but it would increase the money multiplier OB. An increase in the reserve requirement means that banks will be more likely to have your money when you demand it, increasing the money multiplier OC. Since a greater portion of each deposit is being lent out, the multiplier will increase. This means more loans lent and more economic growth. OD. Since a smaller portion of each deposit is being lent out, the multiplier will decrease. This means fewer loans lent and less economic growth.
- 18. Suppose the Fed decreases the discount rate. How does this policy affect the money supply? OIncrease money supply ONo change in money supply ODecrease money supplyQuestion 3 Which of the following is correct? When the Federal Reserve buys government securities from the public, the money supply: O contracts and commercial bank reserves increase. O expands and commercial bank reserves decrease. contracts and commercial bank reserves decrease. expands and commercial bank reserves increase. Question 4 When the Federal Reserve buys Treasury bills from commercial banks and/or public, this leads to a(n): O decrease in the money supply. O increase in the money supply. O change of the money supply to zero. O increase in the interest rates.Suppose the Federal Reserve (Fed) decides the current money supply of $2.1 trillion is too low, and that an increase of $400 billion is necessary. What tool can the Fed use to accomplish this increase? Assume the current reserve ratio is 0.1 OIncrease the reserve ratio. O Buy government securities. Increase the interest paid on bank reserves. Sell government securities. Calculate the change in reserves necessary to achieve the $400 billion increase billion