The graph shows the demand curve for reserves in the market for bank reserves. The federal funds target rate is 4 percent. Draw the supply curve of reserves to achieve the federal funds target rate. Label it. Draw a point at the equilibrium in the market for bank reserves. Choose the statement that is incorrect. O A. Banks hold reserves to meet the required reserve ratio and so that they can make payments. OB. The Fed's open market operations determine the demand for reserves. OC. The higher the federal funds rate, the smaller is the quantity of reserves demanded. O D. Bank reserves are costly to hold because they can be loaned in the federal funds market and earn the federal funds rate. Federal funds rate (percent per year) 8.00 7.00- 6.00- 5.00- 4.00- 3.00- RD 2.00+ 75 0 25 50 100 Reserves on deposit at the Fed (billions of dollars)

The graph shows the demand curve for reserves in the market for bank reserves. The federal funds target rate is 4 percent. Draw the supply curve of reserves to achieve the federal funds target rate. Label it. Draw a point at the equilibrium in the market for bank reserves. Choose the statement that is incorrect. O A. Banks hold reserves to meet the required reserve ratio and so that they can make payments. OB. The Fed's open market operations determine the demand for reserves. OC. The higher the federal funds rate, the smaller is the quantity of reserves demanded. O D. Bank reserves are costly to hold because they can be loaned in the federal funds market and earn the federal funds rate. Federal funds rate (percent per year) 8.00 7.00- 6.00- 5.00- 4.00- 3.00- RD 2.00+ 75 0 25 50 100 Reserves on deposit at the Fed (billions of dollars)

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter21: The Monetary System

Section: Chapter Questions

Problem 10PA

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The central bank sold existing government securities in an open market operation. Which of the following changes is the most likely result of this action? Select one: a. The reserve requirement decreases. O b. The nominal interest rate increases. O c. The discount rate increases O d. Bank reserves increase.
Suppose the Federal Reserve (Fed) decides the current money supply of $2.1 trillion is too low, and that an increase of $400 billion is necessary. What tool can the Fed use to accomplish this increase? Assume the current reserve ratio is 0.1 OIncrease the reserve ratio. O Buy government securities. Increase the interest paid on bank reserves. Sell government securities. Calculate the change in reserves necessary to achieve the $400 billion increase billion
Question 3 In the market for reserves, suppose that the federal funds rate and discount rate are both at 7%. If the Federal Reserve Bank sells securities in the open market, then the equilibrium rate for reserves will and the amount of borrowed reserves will O not change; decrease O not change; increase O rise; increase O rise; decrease Question 4 When the Federal Reserve Bank lowers the reserve requirements for commercial banks in the economy, this causes the curve for reserves to decrease and so the curve shifts to the ----- O demand; right O demand: left O supply; right O supply; left
As a result of the Fed's sale of $3,000 worth of government securities to First Main Street Bank, the bank becomes reserve deficient. Suppose that Yvette, a First Main Street Bank's customer, re-pays back the $3,000 loan she took out a few months ago. Which of the following most accurately describes First Main Street Bank's actions? O The bank keeps the $450 as reserves. O The bank creates a $3,000 loan. O The bank keeps the $3,000 as reserves. O The bank creates a $42,000 loan. The money supply in the economy is چلے
Trevor goes to the ATM machine and withdraws $500 in cash. How will this affect the monetary base? Select one: O a. The monetary base will decline as bank reserves fall. O b. The monetary base will increase with the increase in currency in circulation. O c. The monetary base will increase by less than the size of the withdrawal as the increase in the currency in circulation will not be completely offset by a decrease in bank reserves. O d. The monetary base will remain unchanged with the increase in the currency in circulation being exactly offset by a decrease in bank reserves.
By using open market operations, the Federal Reserve O a. adjusts the supply AND demand of reserves to keep the federal funds interest rate equal to its target. O b. adjusts the supply of reserves to keep the federal funds interest rate equal to its target. Oc controls banks' demand for reserves, thereby keeping the federal funds rate equal to its target. O d. adjusts the demand of reserves to keep bank rates in line with the federal funds rate target. O e. None of these answers is correct.
Suppose the Federal Reserve (Fed) decides the current money supply of $2.1 trillion is too low, and that an increase of $400 billion is necessary. What tool can the Fed use to accomplish this increase? Assume the current reserve ratio is 0.1. Buy government securities. O Increase the interest paid on bank reserves. Increase the reserve ratio. Sell government securities. Calculate the change in reserves necessary to achieve the $400 billion increase. $ billion
Which of the following statements about the market for reserves is true? The Federal Reserve controls the discount rate, but not the amount of nonborrowed reserves. O The supply curve for reserves is completely controlled by the Federal Reserve. The demand curve for reserves is completely controlled by the Federal Reserve. O The Federal Reserve controls the discount rate, but not the amount of nonborrowed reserves.
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
When a bank suffers deposit outflows and has no excess reserves, the bank will generally first try to raise the funds by O A. calling in some loans. B. borrowing from the Fed. C. selling some of its securities. D. selling some loans. Suppose that a bank has $80 in checkable deposits, reserves of $15, and a reserve requirement of 10%. Also assume that the the bank suffers a $10 deposit outflow. If the bank chooses to borrow from the Fed to meet its reserve requirement, then the bank would need to borrow $. (Round your response to the nearest two decimal place.)
The money supply has decreased from $2.75 trillion to $2.25 trillion. Which of the following could have caused this decrease? Select one: O a. consumers withdraw deposits O b. banks hold fewer excess reserves just in case O c. purchase of securities O d. a decrease in the discount rate Next page ous page ser tour on this page 26°C Mostly cloudy e Type here to search end insert home
When the Federal Reserve sells Treasury bonds to the public, this will cause reserves in the banking system to and the money supply is likely to O decrease : decrease O increase : decrease O decrease : increase O increase : increase « Previous Next ASUS 15 R