When the Federal Reserve acts to tighten money and credit in the economy, then the aggregate: Demand curve will shift to the left If the money supply of a … Two ways for banks to borrow reserves from the Federal Reserve are through: A) the discount window and the Term Auction Facility. If the Fed wants to decrease the quantity of money, it makes an open market _____ Reserves in the banking system _____ Banks _____ loans A. decrease, make more B. increase: make more C. increase, call in D. decrease, call in Bank deposits _____ and the quantity of money _____ A. increase: decreases B. increase; increases C. decrease increases D. decrease, decreases The simple quantity theory of money predicts that an increase in M of 5 percent will . What quantity is measured along the vertical axis? To make a trade in a barter economy requires: Money that has no value other than as money is called ______ money. If the money supply is MS2 and the value of money is 5, then there is an excess, supply of money that is represented by the distance between points D and A, If the reserve ratio is 5 percent, then $500 of additional reserves would ultimately generate, Suppose banks decide to hold more excess reserves relative to deposits. When the Fed decreases the interest rate paid on reserves, if the ratio of currency to deposits decreases also while the monetary base is constant, then: A) it cannot be determined whether the money supply increases or decreases. The loan increases the money supply, In the special case of the 100-percent-reserve banking, the money multiplier is, Refer to Figure 30-1. A) Money or the money supply is defined as Federal Reserve notes. d. The federal funds market is a market in which banks can borrow money from other ... d. decreases; decreases . If a bank is short of cash at the end of the day, it borrows from another bank with extra money. If the Fed wants to reduce the money supply by 1000 it should: A. buy government securities worth 250. Refer to Figure 34-5. Ask any economics question and an expert will answer it in as little as 30 minutes. To offsent a recession the fed should: a. use contractionary monetary policy. On their respective balance sheets, this loan is, an asset for the bank and a liability for Danuta's Ice Cream. Quantity Theory of Money If the Federal Reserve wishes to increase the money supply, it should: The most frequently used tool of monetary policy is: To increase the monetary base, the Fed can: To increase the money multiplier, the Fed can: If the Federal Reserve increases the interest rate paid on reserves, banks will tend to hold _____ excess reserves, which will _____ the money multiplier. When the money supply shifts from MS1 to MS2. A) increase the ratio of currency to deposits, B) cause surviving banks to raise their ratios of reserves to deposits. Which of the following events could explain an increase in the equilibrium interest rate from r1 to r3? b . If the interest rate is below the Fed's target, the Fed should, 2.5, so a $100 increase in government spending increases aggregate demand by $250, the group at the Federal Reserve that sets monetary policy, When the Fed buys bonds the supply of money, increases and so aggregate demand shifts right, Policymakers who control monetary and fiscal policy and want to offset the effects on output of an economic contraction caused by a shift in aggregate supply could use policy to shift. ( ) Only the money multiplier determines how much money the Federal Reserve can create. Refer to Figure 30-1. Refer to Figure 34-1. Refer to Figure 34-4. Answer to The Fed decreases the quantity of money to counteract a . Suppose the economy starts at R. If changes occur that move the economy to a new short-run equilibrium of P1 and Y1 , then it must be the case that, If households view a tax cut as temporary, then the tax cut, has less of an effect on aggregate demand than if households view it as permanent, An increase in household saving causes consumption to, people will try to get rid of money causing interest rates to fall. For simplicity, let's consider "security purchasing." The quantitative easing operations conducted by the Federal Reserve between 2007 and 2011 resulted in _____ increases in the monetary base and _____ increases in money supply. C) The inflation rate is measured as the rate of change in the federal government budget deficit. D) the two changes exactly offset each other. ... the Fed decreases the money supply at the same time the federal government increases government spending. Changes the Fed makes to the money supply. It includes all base money held by the private sector, but not that held by the government or foreign central banks. B. demand for money through changes in reserve requirements. The reserve requirement (or cash reserve ratio) is a central bank regulation that sets the minimum amount of reserves that must be held by a commercial bank. O True False Question 18 The purpose of the reserve requirement is to provide liquidity for commercial banks. Monetary Policy. 20 burritos. A country that is on a gold standard primarily uses: An important factor in the evolution of commodity money to fiat money is: The use of fei as money on the island of Yap illustrates the idea of money as a social convention because: B) legal claim to a fei never seen by current generations was accepted in transactions. D. supply of money through changes in stock market operations. Clara holds $120. The severity of the crowding-out effect will be increased if _____ ... OTHER QUIZLET SETS. C) the money supply decreases. The use of borrowed funds to supplement existing funds for purposes of investment is called: The amount of capital that banks are required to hold depends on the: The size of monetary base is determined by: The reserve-deposit ratio is determined by: B) business policies of banks and the laws regulating banks. The Fed can cause money to disappear into thin air. In a country on a gold standard, the quantity of money is determined by the: The quantity of money in the United States is essentially controlled by the: The central bank in the United States is the: In the United States, monetary policy is controlled by: To increase the money supply, the Federal Reserve: To reduce the money supply, the Federal Reserve: B) Federal Reserve purchases and sales of government bonds. By Goods Market, we mean all the buying and selling of goods and services.. By Money Market, we mean the interaction between demand for money and the supply of money (the size of the money stock) as set by the Federal Reserve working through the banking system.. Now, once … The quantity of money in circulation, M, multiplied by the number of times the money turns over, V, is equal to the average price level times the total output. Suppose the money multiplier in the U.S. is 2.5. 92. B. buy government securities worth 400. An increase in taxes will, When the Fed buys government bonds, the reserves of the banking system, Refer to Figure 33-2. Points Earned: 0.0/10.0 Correct Answer(s): B 1. When the Fed decreases the interest rate paid on reserves, if the ratio of currency to deposits decreases also while the monetary base is constant, then: When the Fed increases the discount rate, it: D) is likely to decrease the monetary base (B). The Fed expands the money supply through a couple of methods. less money is needed to buy the same amount of goods, so the value of money rises When conducting an open-market sale, the Fed sells government bonds, and in so doing decreases the money supply A bank's reserve ratio is 7 percent and the bank has $1,000 in deposits. A $1 billion purchase of government securities by the Fed will: A. increase the potential amount of checkable deposits in the banking system by $5 billion. Emotion/Limbic System. Which of the following properly describes the interest-rate effect that helps explain the slope of the aggregate-demand curve? The difference between banks and other financial intermediaries is that only banks have the legal authority to: D) create assets that are part of the money supply. a recessionary gap . The Fed controls the quantity of money in the United States. b. decrease required reserves, decrease the discount rate, and/or buy u.s. government securities on the open market. ( ) The Fed is a division of the Department of the Treasury. The minimum reserve is generally determined by the central bank to be no less than a specified percentage of the amount of deposit liabilities the commercial bank owes to its customers. D) The aggregate price level is measured as the rate of change in the inflation rate. Which of the following both increase the money supply? Answer: Bond supply increases and the bond supply curve shifts to the right. The banks reserves increase by $1 million and its deposits do not change, so it has excess reserves of $1 million. a. an increase in P of 5 percent. a federal budget deficit . b. an increase in P of less than 5 percent. Suppose the money multiplier in the U.S. is 2.5. Money supply can either increase or decrease. Which of the following would cause stagflation? )tells large commercial banks to raise their interest rates. )instructs … - is also known as the quantity theory of money. Study Macroeconomics 251 Chapter 14 Quiz Flashcards | Quizlet B. positive net exports. B. c. increase required reserves, decrese the discount rate, and/or buy u.s. government securities on the open market. B) The average price of goods and services in an economy is called the aggregate price level. What is the impact on interest rates when the Federal Reserve decreases the money supply by selling bonds to the public? Which of the following will help to prevent bank runs? The preferences of households determine the: The ratio of the money supply to the monetary base is called: If the ratio of reserves to deposits (rr) increases, while the ratio of currency to deposits (cr) is constant and the monetary base (B) is constant, then: If the ratio of currency to deposits (cr) increases, while the ratio of reserves to deposits (rr) is constant and the monetary base (B) is constant, then: If the reserve-deposit ratio is less than one, and the monetary base increases by $1 million, then the money supply will: If the currency-deposit ratio equals 0.5 and the reserve-deposit ratio equals 0.1, then the money multiplier equals: If the monetary base equals $400 billion and the money multiplier equals 2, then the money supply equals: When the Fed makes an open-market sale, it: When the Federal Reserve conducts an open-market purchase, it buys bonds from the: For borrowing from the discount window, the Fed sets the _____ of borrowing, compared to borrowing using the Term Auction Facility, where the Fed sets the _____ of borrowing. Suppose the Bank of China permanently decreases its purchases of U.S. government bonds and, instead, holds more dollars on deposit at the Federal Reserve. Which of the following would not be directly included in aggregate demand? The bank makes loans and creates new deposits, which are new money is true, because the bank now has excess reserves. Start studying AP Macro Unit 2. Learn vocabulary, terms, and more with flashcards, games, and other study tools. When the Fed wants to expand the money supply through open market operations, it: a. sells government securities to banks. 21 terms. C. a rise in the unemployment rate. A bank loans Danuta's Ice Cream $190,000 to remodel a building near campus to use as a new store. What is the real value of the money she holds? Which of the following is an example of crowding out? b. purchases government securities from member banks. The commercial bank's reserves … Suppose a burrito costs $6. The Federal Reserve was created to help reduce the injuries inflicted during the slumps and was given some powerful tools to affect the supply of money. When the Fed decreases the interest rate paid on reserves, it: B) decreases the reserve-deposit ratio (rr). Excess reserves are reserves that banks keep: Quantitative easing is most closely akin to: Compared to typical open-market operations, when pursuing quantitative easing, Federal Reserve purchases tended to be _____ securities. 1. a. If the Fed reduces the money supply by 5 percent and the quantity theory of money is true, then output will fall 5 percent in the short run and: A) prices will remain unchanged in the long run. In a system with 100-percent-reserve banking: In a 100-percent-reserve banking system, if a customer deposits $100 of currency into a bank, then the money supply: In a 100-percent-reserve banking system, banks: In a system with fractional-reserve banking: D) all banks must hold reserves equal to a fraction of their deposits, B) a fractional-reserve banking system but not in a 100-percent-reserve banking system. Truc False . That's where the fed funds rate comes in. What is the level of loans? D. sell government securities worth 400. d . ( ) The discount rate cannot be used to control the money supply with great precision because its … If the Federal Reserve wishes for the federal funds rate to be at their target level, then the appropriate action for the Federal Reserve to take is a _____ open market _____, everything else held constant. C) monetary base; money multiplier; monetary base. M – quantity of money in the economy . A. a recessionary gap. People use money as a unit of account when they: B) use money as a measure of economic transactions. The quantitative easing policy conducted by the Federal Reserve between 2007 and 2011 resulted in a large increase in the monetary base that was partially offset by: A) a significant increase in the reserve-deposit ratio. Chair of the Federal Reserve. If the monetary base fell and the currency-deposit ratio rose but the reserve-deposit ratio remained the same, then: A) the money supply would fall, but not by as much as it would have fallen if the reserve-deposit ratio had risen. c . A decrease in the discount rate and a decrease in the interest rate on reserves, Other things the same, if reserve requirements are decreased, the reserve ratio, decreases, the money multiplier increases, and the money supply increases, If the Fed raised the reserve requirement, the demand for reserves would, increase, so the federal funds rate would rise, If the reserve ratio is 5 percent, banks do not hold excess reserves, and people do not hold currency, then when the Fed sells $20 million worth of government bonds, bank reserves, decrease by $20 million and the money supply eventually decreases by $400 million, If the money multiplier is 3 and the Fed wants to increase the money supply by $900,000, it could, If the Federal Reserve increase the interest rate on bank deposits at the Fed, banks will want to hold, more reserves, so the reserve ratio will rise. It is the rate banks charge each other for overnight loans to meet these reserve balances. [True*] The monetary base is created by the Fed and is the definitive money of the nation. To reduce the impact of this the Fed could buy Treasury bonds, When the Consumer Price Index decreases from 140 to 125, less money is needed to buy the same amount of goods, so the value of money rises, When conducting an open-market sale, the Fed, sells government bonds, and in so doing decreases the money supply, A bank's reserve ratio is 7 percent and the bank has $1,000 in deposits. The new equilibrium bond price is lower and thus interest rates will increase. The increase in the quantity of money is … O True O False Question 17 Demand (checkable) deposits are more liquid than currency. Macro Notes 4: Goods and Money Markets. an increase in government expenditures, but not a change in the price level. Suppose the banking system currently has $300 billion in reserves, the reserve requirement is 5 percent, and excess reserves are $30 billion. In addition, the decrease in the money supply will lead to a decrease in consumer spending. When there is an increase in currency held outside the banking system, 6 . 4.1 Interactions Between Goods and Money Markets. )does not change; decreases b. Open-market operations change the ______; changes in interest rate paid on reserves change the ______; and changes in the discount rate change the ______. D. increases the amount of excess reserves and this eventually decreases the money supply. )When the Fed raises the federal funds rate, the consumption expenditure ________ and investment ________. D. a federal budget deficit. Suppose the reserve requirement is 20% and there are no cash holdings or excess reserves. 27. Suppose the fed makes an open marker purchase of $1 million of securities from a bank. The decrease in the money supply is mirrored by an equal decrease in the nominal output, otherwise known as Gross Domestic Product (GDP). Which of the following events shift aggregate demand rightward? The Fed creates the monetary base of the U.S. in the form of Federal Reserve notes and bank reserves on deposit at the Fed. Contractionary monetary policy decreases the money supply in an economy. D) decreases the monetary base and raises the federal funds rate. C. sell government securities worth 250. A bank balance sheet consists of only the following items: The minimum amount of owners' equity in a bank mandated by regulators is called a _____ requirement. The Fed's liabilities include 4 . The interest rate charged on loans by the Federal Reserve to banks is called the: When the Fed increases the interest rate paid on reserves, it: A) increases the reserve-deposit ratio (rr). Its reserves amount to. 2. When banks borrow through the Term Auction Facility, the price of borrowing is determined by: The more funds that the Federal Reserve makes available for banks to borrow through the Term Auction Facility, the _____ the monetary base and the _____ the money supply. B) increases the bank's reserves at the Fed. Suppose on any given day the prevailing equilibrium federal funds rate is above the Federal Reserve's federal funds target rate. 74. To prevent banks from using excess reserves to make loans that would increase the money supply, the Federal Reserve could conduct open-market ______ and _____ the interest rate paid on bank reserves. Fiscal Policy. )decreases; decreases c.)does not change; does not change d.)increases; decreases In the short run, if the Fed wants to raise the federal funds rate, it a. If the Fed wants to increase the quantity of money, it can 5 . The currency-deposit ratio is determined by: C) preferences of households about the form of money they wish to hold. If the economy is in long-run equilibrium, a favorable shift in short-run aggregate supply curve would move the economy from. Total spending = Total Receipts . ... actions the government takes to increase the amount of spending in the economy. The Federal Reserve requires that banks keep an amount on hand each night. an increase in government spending increases interest rates, causing investment to fall. Financial intermediation is the process of: C) transferring funds from savers to borrowers. c. purchases government securities from the Treasury. If the price of burritos rises, to maintain the real value of her money holdings she needs to hold more dollars, If the reserve requirement is 7 percent, a bank desires to hold no excess reserves, and it receives a new deposit of $200, it. Investment increases. In the United States, bank reserves consist of: B) vault cash and deposits at the Federal Reserve. All of the following assets are included in M1 except: Money market mutual fund shares are included in: Checking account balances that are linked to debit cards are included in: In the United States, the money supply is determined: C) jointly by the Fed and by the behavior of individuals who hold money and of banks in which money is held, D) deposits that banks have received but have not lent out. an If there is no currency and the proceeds of all loans are deposited somewhere in the banking system and if rr denotes the reserve-deposit ratio, then the total money supply is: In a fractional-reserve banking system, banks create money when they: In a fractional-reserve banking system, banks create money because: A) each dollar of reserves generates many dollars of demand deposits. 1. positive net exports . ** Every transaction involves a swap between a seller and a buyer. The quantity of money that people plan to hold depends on all of the following factors except 7 . as the price level increases, the interest rate rises, so spending falls, When the Federal Reserve decreases the federal funds target rate, the lower rate is achieved through, purchases of government bonds, which reduces interest rates and causes people to hold more money, Refer to Figure 33-6. An open market purchase of securities will 8 . Find helpful Economics questions and answers on Chegg.com. ... Takes more time and effort for a trade to take place than in an economy using money. The Fed decreases the quantity of money to counteract. Answer Key: C Question 9 of 10 10.0/ 10.0 Points If the quantity of money demanded exceeds the quantity of money supplied, then the A. interest rate stays the same. When a pizza maker lists the price of a pizza as $10, this is an example of using money as a: Money's liquidity refers to the ease with which: D) money can be converted into goods and services. If the current interest rate is 3.25 percent, people will sell more bonds, which drives interest rates up. B) the money supply increases. Refer to figure 30-1. C) obtains the money for the purchase from the U.S. Treasury. lead to. Other things the same, this action will cause the money supply to, fall. d. decrease bank's excess reserves to decrease the money … C. supply of money through open market operations. b. Economists use the term money to refer to: Macroeconomists call assets used to make transactions: All of the following are considered major functions of money except as a: People use money as a store of value when they: A) hold money to transfer purchasing power into the future. When the Fed buys U.S. government securities from a bank, the Fed A) loans the money needed to buy the securities to the bank.

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