Question 7 Suppose that currently we are in the era of ample reserves. The total amount of reserves in the banking system is $4 trillion. Which of the following monetary policy actions by the Fed will most likely cause the equilibrium federal funds rate to decrease? O a. An open market purchase of $20 billion. O b. A reduction in the discount rate. O c. A reduction in the required reserve ratio. d. A reduction in the interest rate on reserves. Oe. None of the above.

Question 7 Suppose that currently we are in the era of ample reserves. The total amount of reserves in the banking system is $4 trillion. Which of the following monetary policy actions by the Fed will most likely cause the equilibrium federal funds rate to decrease? O a. An open market purchase of $20 billion. O b. A reduction in the discount rate. O c. A reduction in the required reserve ratio. d. A reduction in the interest rate on reserves. Oe. None of the above.

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter11: The Monetary System

Section: Chapter Questions

Problem 9PA

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Suppose that in a certain banking system, the target reserve ratio is 45%. Keeping in mind the money multiplier, if the central bank in this economy wanted to expand the money supply by $400 billion, then by how much would this central bank need to increase the monetary base (MB)? O a. $355.00 billion O b. $72.50 billion O c. $180.00 billion O d. $11.25 billion O e. $27.59 billion f. $360.00 billion g. $7.27 billion
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.
Which set of actions could the central bank use to increase the money supply? Select one: O a. an open market purchase and a tax cut O b. a discount rate cut and an open market sale O c.a reduction in the required reserve ratio and an open market purchase O d. a reduction in the required reserve ratio and an open market sale
28 of 38 Which of the following statements is true? O A. If the market for money is in equilibrium, then the bond market is in disequilibrium. O B. As the interest rate increases, the opportunity cost of holding money decreases. O C. An increase in the money supply could ultimately lead to the money demand curve to shift rightward. O D. A higher level of income causes the demand for money at each interest rate to increase and the demand curve to shift to the left. Unsure
If the Fed is pursuing a fixed interest rate target, an increase in the money supply will be required when Select one: O a. money demand increases. O b. GDP decreases. c. M2 increases relative to M1, because the transaction cost of transferring money from savings accounts to checking accounts declines. O d. money demand decreases.
The reserve requirement is 10%. Suppose that the Fed sells $100,000 worth of U.S. government securities from a bond dealer, electronically debiting the dealer's deposit account at Reliable Bank. Which of the following correctly describes the immediate effect of this transaction on the money supply? O A. The money supply decreases by $1,000.000. O B. The money supply decreases by $100,000. O C. The money supply decreases by $90,000. O D. There is no change in the money supply. O E. None of the above.
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
Cash: $104.25 billion Checking deposits: $157.4 billion Saving accounts: $270.5 billion Small denomination time deposits: $20.3 billion Bank reserves held at the Fed: $33.0 billion Suppose that in a certain economy, the above are the only forms of money. How much M2 money is there? O a. $565.15 billion O b. $282.15 billion O c. $427.90 billion O d. $303.50 billion O e. $137.25 billion O f. $552.45 billion
Suppose the reserve ratio of a bank is 0.125 and the Fed buys $10 billion worth of government bonds. What is the maximum impact this has on the money supply? O $80 billion O-$15.625 billion $15.625 billion O $125 billion
Suppose there is an upswing in the economy with a large demand for finance to invest by the residential and non-residential building sector such that lending by all banks increases by $250 billion. On the assumption the reserve (or liquidity) ratio of banks is 12% this expansion in economic activity will result in an endogenous increase of O $20 billion of reserves and $230 billion of bank deposit money O $34.1 billion of reserves and $284.1 billion of bank deposit money O $20 billion of reserves and $270 billion of bank deposit money O $26.2 billion of reserves and $276.2 billion of bank deposit money
According to the monetary transmission process, what will be the effect of a decrease in the money supply? O a. A decrease in the interest rate, an increase in investment spending, and an increase in GDP. O b. An increase in the interest rate, an increase in investment spending, and an increase in GDP. O c. A decrease in the interest rate, a decrease in investment spending, and a decrease in GDP. O d. An increase in the interest rate, a decrease in investment spending, and a decrease in GDP. O e. An increase in the interest rate, an increase in investment spending, and a decrease in GDP.
Consider a situation where the central bank increases the money supply. All other things being equal, if nominal GDP increased by $800 billion during a time when velocity was 4, by how much did the central bank increase the money supply? O $200 million $400 billion $400 million $200 billion