When the federal reserve conducts open-market operations to increase the money supply, it
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Terms in this set (26)When the Fed conducts an open market sale, it: a. reduces the money supply and lowers interest rates b. reduces the money supply and raises interest rates An increase in interest rates (due to a decrease in the money supply) will: a. not change aggregate demand c. reduce aggregate demand The major tools of monetary policy available to the Federal Reserve System are: a. reserve requirements, open-market operations, and the discount rate. a. reserve requirements, open-market operations, and the discount rate. What are the three types of monetary policy lags? a. the recognition lag, the implementation lag, and the government lag. d. the recognition lag, the implementation lag, and the impact lag. Which of the following are primary functions of a central bank? I. act as a regulator of banks a. I, II, III, IV b. I and III The Federal Reserve System: I. is the central bank for the United States. a. I and III only c. I only Which of the following is not a function of the Federal Reserve System? a. it acts as a central bank b. it determines tax levels in conjunction with the U.S. Treasury The Board of Governors of the Federal Reserve System is: a. appointed by the state governors in each Federal Reserve district. c. appointed by the president of the United States and confirmed by the Senate. Which of the following is true regarding the reserve requirements?: a. the Fed changes them frequently because doing so simplifies banking operations c. the Fed does not change them much at all because doing so would make banking operations more difficult When a member bank borrows reserves from the Fed; a. it pays an interest rate equivalent to the coupon rate on long-term government bonds. c. it pays an interest rate called the discount rate. When the Federal Reserve conducts open market transactions, it: a. buys or sells previously issued government bonds a. buys or sells previously issued government bonds The _____ rate is the interest rates charged when a bank lends reserves to another bank. a. prime b. federal funds Which of the following are monetary policy goals? I. maintain high interest rates a. I, II, and III d. II and IV Suppose the economy experiences a recessionary gap. Expansionary monetary policy that increases the money supply will: a.
decrease real GDP and increase the price level c. increase real GDP and increase the price level Suppose the economy experiences a recessionary gap. Expansionary monetary policy will: a. increase interest rates and increase investment d. decrease interest rates and increase investment If the Fed sells government bonds, bank reserves will: a. decrease, leading to a decrease in the money supply. a. decrease, leading to a decrease in the money supply. When the Fed sells bonds in the open market, we can expect: a. bond prices to rise and interest rates to fall c. bond prices to fall and interest rates to rise If inflation is a threat, then the Fed will be expected to engage in: a. contractionary monetary policy a. contractionary monetary policy During an economic slump, policies that lower interest rates may not actually boost investment because: a. investment is never affected by interest rate changes b. of pessimistic expectations by businesses about the future of the economy. A liquidity trap is said to exist when a change in monetary policy has no effect on: a. interest rates and investment a. interest rates and investment If the Fed acts to decrease the money supply; a. it will increase the required reserve ratio (rrr). a. it will increase the required reserve ratio (rrr). What happens in the money market when there is an increase in the supply of money? a. The equilibrium quantity of money decreases and the equilibrium interest rate decreases. d. The equilibrium quantity of money increases and the equilibrium interest rate decreases. If bond prices fall; a. interest rates rise, which in turn,
discourage investment. a. interest rates rise, which in turn, discourage investment. Which of the following statements is true if interest rates were zero?: a. the supply of bonds will increase d. People will hold their wealth in the form of money rather than in bonds. The seven members of the Board of Governors serve 14-year terms to: a. better understand the economy b. reduce political influence Which organization is directly responsible for conducting Monetary Policy in the United States? a. The Federal Open Market Committee a. The Federal Open Market Committee Sets with similar termsMACRO FINAL 257 terms Desiree_P3 Macroeconomics Chapter 11 (Pre)20 terms Csurra5 Chapter 1120 terms victoria_waddell Chapter 15 Economics31 terms krissyrocketsPLUS Other sets by this creatorspanish exam 2 vocab58 terms cat_jk23 Tenses Spanish Exam 129 terms cat_jk23 Spanish Exam 1 Practice31 terms cat_jk23 Criminal Procedure27 terms cat_jk23 Verified questions
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What happens when the Federal Reserve decides to increase the money supply?The process works this way: If the Fed decides to increase the money supply, its open-market manager buys back treasury securities from private dealers, paying for them by simply crediting their bank accounts. It does not transfer any actual cash.
What happens when the Federal Reserve conducts open market sales?Open market operations are used by the Federal Reserve to move the federal funds rate and influence other interest rates. It does this to stimulate or slow down the economy. The Fed can increase the money supply and lower the fed funds rate by purchasing, usually, Treasury securities.
When the Fed conducts open market operations How does the money supply decrease?The Fed uses open market operations to buy or sell securities to banks. When the Fed buys securities, they give banks more money to hold as reserves on their balance sheet. When the Fed sells securities, they take money from banks and reduce the money supply.
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