The Federal Open Market Committee can buy and sell government securities/bonds. Which of the following tools of monetary policy does this describe? A. interest on excess reserves B. open market operations C. reserve requirement

The Federal Open Market Committee can buy and sell government securities/bonds. Which of the following tools of monetary policy does this describe? A. interest on excess reserves B. open market operations C. reserve requirement

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter25: Money, Banking, And The Federal Reserve System

Section: Chapter Questions

Problem 24P

See similar textbooks

Related questions

Q: What does it mean for an asset to be liquid? Which of the assets listed below is the most liquid?…

A: A liquid asset is something that can be turned into money fast and readily while keeping its market…

Q: The central bank of Jamaica decides to pursue an expansionary monetary policy (i) Identify one…

A: An expansionary monetary policy can be understood as a tool used by the central bank to stimulate…

Q: Policy Perspectives If the price level increases by 0.2 percent for every $100 billion increase in…

A: * SOLUTION :- *(5) The Fed has increased the total reserves by $100 billion. * Increase in…

Q: The fed conducts a $10 open-market purchase of government bonds.If the required reserve rate is 10…

A: The Fed is referred to as the Central Bank of the United States. The Fed looks after the country's…

Q: Which entity is responsible for conducting Monetary Policy? (a) Congress (b) The President (c)…

A: Monetary policy is the policy of the Monetary Authority of the country that aims to control the…

Q: Discuss the three primary functions of money as well as the Federal Reserves measures of the…

A: Money is what money does. The functions of money are: 1) Medium of exchange: Money acts as the…

Q: What is the value of the monetary base, given that the value of deposits at all depository…

A: Monetary base:Monetary base can be calculated as follows:

Q: “The Fed can perfectly control the amount of reservesin the system.” Is this statement true, false,…

A: The fed can make some variations in the money supply by buying and selling of bonds through the open…

Q: Yesterday Bank A had no excess reserves. Today it received a new deposit of $4,000. a. If the bank…

A: The banks have various considerations like the required reserves, the excess reserves, deposits,…

Q: The central bank of Trinidand & Tobago decides to pursue an expansionary monetary policy. (i)…

A: In the Trinidad and Tobago economy, the central imposes expansionary monetary policy.

Q: Who makes decisions on monetary policy within the Federal Reserve? A. The 12 Federal Reserve…

A: Federal Reserve is the central bank of the USA. The functions of Federal Reserve are as follows:…

Q: Part II: The Federal Reserve notices this slowdown in the economy and decides to take steps to…

A: For part 2: The FED is observing the slowdown in the economy, this problem needs to be corrected…

Q: How do each of the Fed's tools work? What is the fractional reserve system, and how does it work in…

A: Fiscal policy refers to the method of government spending and tax policies to take control over the…

Q: The central bank of a country directly influences the components of money supply through…

A: The central bank can control the money supply by using the full reserve banking system or fractional…

Q: If reserves are superabundant, how would the federal funds rate change (increase or decrease) if the…

A: The federal reserve (FR) have the ability to fluctuate the FR fund rate by changing the amount of…

Q: The central bank of Grenada decides to pursue an expansionary monetary policy. (i) Identify one…

A: (Q) The central bank of Grenada decides to pursue an expansionary monetary policy. (i) Identify one…

Q: The banking system currently has $10 billion of reserves, none of which are excess. People hold only…

A: Reserve is the amount kept by bank , on the directed by central bank here we calculate the money…

Q: The central bank of your assigned Caribbean country (Grenada) decides to pursue an expansionary…

A: 1) The central bank of every country is responsible for the financial stability in the country with…

Q: If the Fed wants to increase the money supply, it can a)raise income tax rates b) buy bonds in…

A: Money supply- It is the total stock of money circulated in an economy.

Q: O The government cuts taxes. Technological progress improves productivity. Expectations of a growing…

A: The aggregate demand curve shows the inverse relationship between the price level and the total…

Q: The central bank of Barbados decides to pursue an expansionary monetary policy. (lower interest…

A: (Q)The central bank of Barbados decides to pursue an expansionary monetary policy. (lower interest…

Q: Discuss the three (3) traditional monetary policy tools that the Federal Open Market Committee…

A: Federal Open Market Committee (FOMC) of the Federal Reserve has the primary responsibility of…

Q: bank A borrows $10 million from bank B, what happens to the reserves in bank A? In the banking…

A: An asset-liability comparison has to be done to answer this question. Here is an example of…

Q: Explain how each of the following developments affects money supply, money demand, and interest…

A: The money supply is the total amount of money available in the economy at a given point in time. The…

Q: The central bank has most control over a. Monetary base b. M1 c. M2

A: Meaning of Financial Assets: The term financial assets refer to the situation, under which these…

Q: Suppose the required reserve ratio is 10%, excess-to-deposit ratio is 10%, and the…

A: Given, Required reserve ratio = 10% Which means that multiplier = 1/Requires reserve ratio = 1/10%…

Q: The Fed conducts a $10 million open-market purchase of government bonds. If the required reserve…

A: The Fed is the Central Bank of the U.S. It handles the country's monetary policies and regulates…

Q: The central bank in Jamica decides to pursue an expansionary monetary policy. (i) Identify one…

A: “Since you have posted multiple questions, we will provide the solution only to the first question…

Q: Draw a diagram of the market for bank reserves and show a situation in which there is excess demand…

A: Suppose the demand for foreign exchange is greater than the supply of foreign exchange there will be…

Q: During the economic crisis of the 1970s, the economy was suffering from high levels of inflation.…

A: Monetary policy the Government or central bank used to settle down the Inflation and Recession in…

Q: QUESTION 6 a. Name any two types of financial intermediaries, giving a short explanation and example…

A: Financial intermediaries are institutions that stand between borrower and lenders.

Q: Suppose a country's nominal GDP is $120 billion. The money supply is $100 billion. What is the…

A: GDP is the value of the basket of goods and services produced within the borders of a country at a…

Q: The Federal Reserve can expand the money supply through open market operations. The Federal Open…

A: To make changes in the money supply, the Federal Reserve can use open market operations by buying or…

Q: If the Fed lends five banks a total of $100 million butdepositors withdraw $50 million and hold it…

A: Assets Liabilities Loans (borrowings from fed) $100 million…

Q: What are money multiplier and monetary policy? How are they related? Describe the functions of the…

A: The money supply in macroeconomics refers to the total amount of money held by the public at a given…

Q: You have the assignment of making a recommendation to the Chairman of the Fed during a period of…

A: Inflation is the situation when the general price level of commodities in the economy rises. For…

Q: In Vacanada, the monetary base is $20 billion, total desired bank reserves are $1 billion, and total…

A: When measuring a country's money supply, currency and other liquid assets are included. Cash and…

Q: )If the South African economy was operating at its potential Gross Domestic Product (GDP) capacity,…

A: Gross domestic product is the total market value of goods and sevices produced domestically during…

Q: The central bank of Barbados decides to pursue an expansionary monetary policy of reserve…

A: please find the answer below.

Q: What are the goals of monetary policy? How have the goals changed since August 2020? Describe how…

A: The monetary arrangement is a bunch of apparatuses that a nation's central bank has access to…

Q: In a system of fractional-reserve banking, evenwithout any action by the central bank, the…

A: Fractional reserve banking refers to holding a prescribed fraction or ratio of the total holding of…

Q: In Vacanada, the monetary base is $20 billion, total desired bank reserves are $1 billion, and total…

A: Values given are:- Monetary base = 20 billion Total desired bank reserves = 1 billion Total bank…

Q: If the Fed shifts to a more restrictive monetary policy, and it utilizes the open market operations…

A: Contractionary monetary policy is done in order to reduce the aggregate demand, decrease output, and…

Concept explainers

Required Reserve and Excess Reserve Analysis

A required reserve is an amount of cash that banks must keep with themselves, which is certain percentage of the deposits made by their customers. Required reserve is a percentage of the bank's deposits that the respective bank must have on each overnight. The percentage rate is set and determined by the nation’s central bank. It is important to have such funds accumulated to meet its uncertain obligations, sudden liabilities and withdrawals. Required reserve is also known as reserve ratio. Reserve ratio is an important tool to control the money supply.

Question

100%

The Federal Open Market
Committee can buy and sell
government securities/bonds.
Which of the following tools of
monetary policy does this
describe?
A. interest on excess reserves
B. open market operations
C. reserve requirement
D. discount rate

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.

Similar questions

Explain whether each of the following eventsincreases or decreases the money supply.a. The Fed buys bonds in open-market operations.b. The Fed reduces the reserve requirement.c. The Fed increases the interest rate it pays onreserves.d. Citibank repays a loan it had previously takenfrom the Fed.e. After a rash of pickpocketing, people decide tohold less currency.f. Fearful of bank runs, bankers decide to hold moreexcess reserves.g. The FOMC increases its target for the federalfunds rate.
Classify each of the following as either a policy instru- ment or an intermediary target. Explain your answer. a. Long-term interest ratesb. Central bank interest rates c. M2d. Reserve requirements
The demand curve and supply curve for one-year discount bonds with a face value of $1,050 are representedby the following equations:Bd: Price = -0.8 * Quantity + 1160Bs: Price = Quantity + 720Suppose that, as a result of monetary policy actions, theFederal Reserve sells 90 bonds that it holds. Assume thatbond demand and money demand are held constant.a. How does the Federal Reserve policy affect the bondsupply equation?b. Calculate the effect on the equilibrium interest rate in this market, as a result of the FederalReserve action.
Assume that the reserve requirement is 20 percent.Also assume that banks do not hold excess reservesand that the public does not hold any cash. The Feddecides that it wants to expand the money supply by$40 million.a. If the Fed is using open-market operations, will itbuy or sell bonds?b. What quantity of bonds does the Fed need tobuy or sell to accomplish the goal? Explain yourreasoning.
Beleaguered State Bank (BSB) holds $250 million indeposits and maintains a reserve ratio of 10 percent.a. Show a T-account for BSB.b. Now suppose that BSB’s largest depositorwithdraws $10 million in cash from her accountand that BSB decides to restore its reserve ratio byreducing the amount of loans outstanding. Showits new T-account
Suppose your mom sends you $500 for your birthday and you deposit it in your chequing account. The reserve ratio is 10%. If the bank decides to loan out the excess, based on this deposit the bank's loans have increased by and the bank's chequable deposits have increased by Select one: a. $50; $450 b. $450; $500 c. $50; $500 d. $500; $50
Using the supply and demand analysis of the marketfor reserves, indicate how the following situationswould affect central bank interest rates and economiesin general.a. The central bank eliminates interest paid on excessreserve.b. The central bank introduces special interest rates(lower than usual) for commercial banks and setsspecial auction.c. The central bank conducts an open market sale ofcertain securities.d. The central bank sets negative interest rates on bankdeposits.e. The central bank increases reserve requirements.
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
In a system of fractional-reserve banking, evenwithout any action by the central bank, the moneysupply declines if households choose to hold_________ currency or if banks choose to hold_________ excess reserves.a. more; moreb. more; lessc. less; mored. less; less
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.
12. what factors motivate the central bank to require tge two selected Dls to hold minimum amounys of liquid assets?
The income generated from federal funds sold is counted on a bank's income statement as a. gross interest income. b. gross interest expense. c. noninterest income. d. noninterest expense. 2. When a central bank wants to pursue a contractionary monetary policy, it should a. increase the required reserve ratio. b. pump excess reserves into the banking system. c. decrease the required reserve ratio. d. decrease the currency ratio. When the link between M1, M2, and inflation broke down in the 1980s, many economists argued that the best policy approach was to have an explicit inflation target. The biggest problem with an explicit inflation target is a. that it requires perfect foresight on the part of the Federal Reserve because of the lagged impact of monetary policy instruments. b. determining which measure of inflation to use. c. that it puts too much emphasis on stable…