Macroeconomics
10th Edition
ISBN: 9781319105990
Author: Mankiw, N. Gregory.
Publisher: Worth Publishers,
expand_more
expand_more
format_list_bulleted
Question
Chapter 4, Problem 6QQ
To determine
Identify the open market operations for controlling the money supply.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
When conducting an open-market purchase, the Central Bank
Select one:
a.sells government bonds, and in so doing decreases the money supply.
b.buys government bonds, and in so doing decreases the money supply.
c.sells government bonds, and in so doing increases the money supply.
d.buys government bonds, and in so doing increases the money supply.
Assume that the reserve requirement is 20 percent. Also assume that banks do nothold excess reserves and there is no cash held by the public. The Fed decides that itwants to expand the money supply by $40 million.a. If the Fed is using open-market operations, will it buy or sell bonds?b. What quantity of bonds does the Fed need to buy or sell to accomplish the goal?Explain your reasoning
24.
If the economy is at potential output, and the Fed increases the money supply, in the short run, the likely result will be a(n) _____ in investment and a(n) _____ in consumer spending.
increase; decrease
decrease; increase
increase; increase
decrease; decrease
26.
Suppose that a typical basket of goods is now less expensive than it used to be. All else equal, we would expect:
the demand curve for money to shift outward.
a downward movement along a fixed money demand curve.
the demand curve for money to shift inward.
an upward movement along a fixed money demand curve.
Knowledge Booster
Similar questions
- If the Fed decides to sell U.S. Treasury bonds on the open market, how will the money supply and interest rates be affected? a.Money supply unchanged + interest rates increase b.Money supply decrease + interest rates decrease c.Money supply increase + interest rates increase d.Money supply decrease + interest rates increase e.Money supply increase + interest rates decreasearrow_forwardUnder which of the following situations will the purchase of bonds by the Central Bank have the greatest effect on real GDP of an economy? A. The required reserve ratio is high, and the interest rate has a large effect on investment spending. B. The required reserve ratio is high, and the interest rate has a small effect on investment spending. C. The required reserve ratio is low, and the interest rate has a large effect on investment spending. D. The required reserve ratio is low, and the marginal propensity to consume is low.arrow_forwardIf the Federal reserve decides to reduce the money supply through open market operations, then the price of bonds will _____ and the rate of return for bonds will _____ increase or decrease?arrow_forward
- The Federal Reserve has decided it wants to increase interest rates by decreasing the money supply through deposits held at financial intermediaries. All else equal, if the reserve requirement is 10% for all deposits, and the Fed wants to decrease deposits by $100 million, which of the following actions should be taken? Assume no excess reserves exist in the banking system.a. Buy government securities from dealers totaling $1 billion.b. Sell government securities to dealers totaling $111 million.c. Buy government securities from dealers totaling $11.1 million.d. Sell government securities to dealers totaling $11.1 million.e. None of the above.arrow_forwardThe reserve requirement is 10%. Suppose that the Fed purchases $50,000 worth of U.S. government securities from a bond dealer, electronically crediting the dealer's deposit account at Reliable Bank. Which of the following correctly describes the immediate effect of this transaction? A. The required reserves of Reliable Bank increase by $50,000. B. The total reserves of Reliable Bank increase by $50,000. C. Reliable Bank can make $50,000 in new loans. D. The excess reserves of Reliable Bank increase by $50,000. -ம்arrow_forward1. Explain what happens to the money supply, interest rates, investment spending and GDP when the Fed makes open market bond purchases. 2. Use the money demand and money supply model to show graphically and explain the effect on interest rates of the Federal Reserve’s open market purchase of Treasury securities.arrow_forward
- If the Fed makes an open market sale of $1 million of securities to a bank, how do the bank's reserves and excess reserves change? How do bank deposits and the quantity of money change? If the Fed makes an open market sale of $1 million of securities to a bank, the bank's reserves _______. Excess reserves _______. A. increase; increase B. decrease; decrease C. increase; decrease D. decrease; increase Bank deposits _______ and the quantity of money _______. A. increase; decreases B. increase; increases C. decrease; increases D. decrease; decreasesarrow_forwardWhich of the following is one of the Fed's policy tools? One of the Fed's policy tools is _______. A. the discount rate, which is the interest rate at which the Fed stands ready to lend reserves to commercial banks B. the required reserve ratio, which equals 3 percent on checkable deposits and 10 percent on savings deposits C. the open market operations, which are purchase of government securities from the government D. the monetary base, which is the sum of coins and Federal Reserve notesarrow_forwardIf the Bank of Canada were to conduct an open market purchase, it would Select one: a. decrease the money supply and decrease output. b. increase the money supply and decrease output. c. increase the money supply and increase output. d. decrease the money supply and increase output.arrow_forward
- The Fed wants to decrease the money supply when the economy is booming and inflationary pressures ________ in the economy.arrow_forwardIn an economy where the central bank implements negative interest rates as a monetary policy tool, what is the most likely short-term impact on consumer savings behavior and bank profitability? A. An increase in consumer savings as people seek to safeguard their money and a rise in bank profitability due to increased lending. B. A decrease in consumer savings as the incentive to save diminishes and a decrease in bank profitability due to lower interest margins. C. No significant change in consumer savings behavior but an improvement in bank profitability due to lower borrowing costs. D. A shift in consumer investment towards riskier assets and challenges in bank profitability due to compressed interest margins. Please don't use chatgpt it is giving wrong answer and please provide valuable answerarrow_forwardCommercial banks have a target reserve ratio of 30 percent and there is a cash drain of 20 percent. If the Central Bank issues an additional 12 dollars of currency the money supply will increase by _____________ dollars.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Economics: Private and Public Choice (MindTap Cou...EconomicsISBN:9781305506725Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. MacphersonPublisher:Cengage LearningMacroeconomics: Private and Public Choice (MindTa...EconomicsISBN:9781305506756Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. MacphersonPublisher:Cengage Learning
Economics: Private and Public Choice (MindTap Cou...
Economics
ISBN:9781305506725
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:Cengage Learning
Macroeconomics: Private and Public Choice (MindTa...
Economics
ISBN:9781305506756
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:Cengage Learning