6 of 25 When the Federal Reserve sells a government bond, O money flows from the central bank to individual banks in the economy and decreases the money supply. money flows from the central bank to individual banks in the economy and increases the money supply. O money flows from the individual banks in the economy to the central bank and increases the money supply. money flows from the individual banks in the economy to the central bank and decreases the money supply.

6 of 25 When the Federal Reserve sells a government bond, O money flows from the central bank to individual banks in the economy and decreases the money supply. money flows from the central bank to individual banks in the economy and increases the money supply. O money flows from the individual banks in the economy to the central bank and increases the money supply. money flows from the individual banks in the economy to the central bank and decreases the money supply.

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter22: Money Growth And Inflation

Section: Chapter Questions

Problem 1PA

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Suppose the Board of Governors has determined that housing bubbles can be detrimental to the economy and try to cool down the economy. To accomplish this goal, they would most likely pursue policies that promote: O lower interest rates and an expansion of bank lending activity. O higher interest rates and a contraction of bank lending activity. O higher interest rates and an expansion of bank lending activity. O lower interest rates and a contraction of bank lending activity.
1. The existence of budget deficits must mean that the government is conducting an expansionary fiscal policy. * O True False 2. If a bank sells a $ 10,000 Treasury bill to the central bank, and receives a in its account with the central bank, the money supply will increase by mor $ 10,000.The addition to bank reserves will permit a multiple expansion of deposits. True False
Question Compare the functions of the Federal Reserve district banks with those for the Board of Governors. O a Ob O c Od O a Ob The Federal Reserve district banks direct monetary policy and overlook the banking industry while the Board of Governors Implement the policies from the district banks. The Federal Reserve district banks set the target federal funds rate and oversee open market operations while the Board of Governors direct monetary policy and set reserve requirements on banks. Question How do the instances when expansionary fiscal policy should be used compare with those for contractionary fiscal policy? Od The Board of Governors set the discount rate and reserve requirements on banks while the Federal Reserve district banks overlook the banking industry and implement the policies from the Board of Governors. The Board of Governors set the target federal funds rate and overlook the banking industry while the Federal Reserve district banks implement the policies from the…
If a bank uses $100 of excess reserves to make a new loan when the reserve ratio is 25 percent, what happens to the money supply in the very short term? O a. It decreases by $100. O b. It increases by $25. O C. It decreases by $25. O d. It increases by $100. Show Transcribed Text Suppose a bank has $200,000 in deposits and $150,000 in loans. What is its reserve ratio? O a. 1 percent O b. 5 percent O C. 10 percent O d. 25 percent Show Transcribed Text Which list ranks the Bank of Canada's monetary policy tools from most to least frequently used? O a. bank rate changes; open-market transactions; reserve requirement changes O b. bank rate changes; reserve requirement changes; open-market transactions O c. open-market transactions; bank rate changes; reserve requirement changes O d. open-market transactions; reserve requirement changes; bank rate changes
Suppose the Fed buys $400 worth of Treasury Securities from commercial banks. How would that transaction affect the balance sheet of the commercial banks? Commercial banks' Treasury Securities would fall by $400 and their Reserves would rise by $400. Commercial banks' Treasury Securities would fall by $200 and their Reserves would rise by $400. Commercial banks' Treasury Securities would fall by $400 and their Reserves would rise by $200. O Commercial banks' Treasury Securities would fall by $200 and their Reserves would rise by $200.
Table 29-6. Reserves Loans O $106,000 O $60,000 O $72,000 Assets O $50,200 Bank of Springfield $19,200 228,000 Refer to Table 29-6. Assume the Fed's reserve requirement is 6 percent and that the Bank of Springfield makes new loans so as to make its new reserve ratio 6 percent. From then on, no bank holds any excess reserves. Assume also that people hold only deposits and no currency. Then by what amount does the economy's money supply increase? Deposits Liabilities $240,000
Assume that a bank receives a deposit of $1,000 in cash, puts aside $200 as required reserves, and makes a loan of $800, these transactions imply that: O the money supply by the whole banking system can increase by $1,000. O the money supply by the whole banking system can increase by $4,000. the money supply by the whole banking system can increase by $8,000. O the money supply by the whole banking system can increase by $5,000.
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.
10. The discount rate and the federal funds rate The discount rate is the interest rate on loans that the Federal Reserve makes to banks. Banks occasionally borrow from the Federal Reserve when they find themselves short on reserves. A lower discount y banks' incentives to borrow reserves from the Federal Reserve, thereby z the quantity of reserves in the banking system and causing the money supply to rate The federal funds rate is the interest rate that banks charge one another for short-term (typically overnight) loans. When the Federal Reserve uses open-market operations to sell government bonds, the quantity of reserves in the banking system banks' need to borrow from each other and the federal funds rate
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.
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 supply
The following table gives the quantity of money demanded at various price levels (P), the money demand schedule. In the following table, fill in the column labeled Value of Money. Price Level (P) Value of Money (1/P) 0.80 1.00 1.33 2.00 Now consider the relationship between the quantity of money that people demand and the price level. The lower the price level, the required to complete transactions, and the money people will want to hold in the form of currency or demand deposits. Assume that the Federal Reserve initially fixes the quantity of money supplied at $3.5 billion. VALUE OF MONEY 8 Use the orange line (square symbol) to plot the initial money supply (MS) set by the Fed. Then, referring to the previous table, use the blue connected points (circle symbol) to graph the money demand curve. 2.00 1.75 1.50 1.25 1.00 0.75 Quantity of Money Demanded (Billions of dollars) 1.5 2.0 3.5 0.50 025 0 7.0 3 QUANTITY OF MONEY (Billions of dollars) 7 101 MS, Money Demand M money ?