5.1. Which of the following Fed actions will Select one or more answers from the choices shown. The Fed raises the discount rate from 5 percent to 6 percent. b. The Fed raises the reserve ratio from 10 percent to 11 percent. c. The Fed buys $400 million worth of Treasury bonds from commercial banks. d. The Fed lowers the discount rate from 4 percent to 2 percent. а. с.

5.1. Which of the following Fed actions will Select one or more answers from the choices shown. The Fed raises the discount rate from 5 percent to 6 percent. b. The Fed raises the reserve ratio from 10 percent to 11 percent. c. The Fed buys $400 million worth of Treasury bonds from commercial banks. d. The Fed lowers the discount rate from 4 percent to 2 percent. а. с.

ECON MACRO

5th Edition

ISBN:9781337000529

Author:William A. McEachern

Publisher:William A. McEachern

Chapter14: Banking And The Money Supply

Section: Chapter Questions

Problem 4.9P

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The graph shows the demand curve for bank reserves, RD. The current quantity of reserves supplied is $20 billion. The Fed wants to set the federal funds rate at 4 percent a year. Does the Fed conduct an open market operation and if so, does it buy or sell securities? ... 8- Question Viewer 7- Draw a point on the curve that shows the federal funds rate when the quantity of reserves supplied is $20 billion. Label it 1. The Fed wants to set the federal funds rate at 4 percent a year. Draw a supply of reserves curve that achieves the target. Label it. Draw a point to show the new equilibrium federal funds rate. Label it 2. -... Federal funds rate (percent per year) Q Q 6- 5- 4- 3- 2- 1- RD མ] 0 10 20 30 40 50 60 70 80 Reserves on deposit at the Fed (billions of dollars) >>> Draw only the objects specified in the question.
question 5. Which of the following Fed actions will increase bank lending? Select one or more answers from the choices shown.- The Fed raises the discount rate from 5 percent to 6 percent.- The Fed raises the reserve ratio from 10 percent to 11 percent.- The Fed buys $400 million worth of Treasury bonds from commercial banks.- The Fed lowers the discount rate from 4 percent to 2 percent.
5. Fiscal policy, the money market, and aggregate demand Consider a hypothetical economy in which households spend $0.50 of each additional dollar they earn and save the remaining $0.50. The following graph shows the economy's initial aggregate demand curve ( AD1 ). Suppose the government increases its purchases by $3.5 billion. Use the green line (triangle symbol) on the following graph to show the aggregate demand curve (AD2 ) after the multiplier effect takes place. Hint: Be sure the new aggregate demand curve (AD2 ) is parallel to AD1. You can see the slope of AD1 by selecting it on the following graph. 116 114 AD, 112 AD, 110 AD, 108 106 104 102 100 100 102 104 106 108 110 112 114 116 OUTPUT (Billions of dollars) The following graph shows the money market in equilibrium at an interest rate of 6% and a quantity of money equal to $30 billion. PRICE LEVEL
3. Assume that the Fed announces a new higher target for the federal funds rate. How will it achieve this target?
QUESTION 12 The fed funds rate and the discount rate are interest rates banks charge households to borrow money overnight. O True O False QUESTION 13 What happened to the discount rate in January 2003 and why? Read this article from the Federal Reserve to find the answer. The discount rate moved below the fed funds rate because fewer banks wanted to borrow from the Fed anymore The discouunt rate became equal to the fed funds rate because the bank lending programs were merged into one The discount rate moved above the fed funds rate so any sound financial institution could borrow from the Fed and to eliminate the perception banks were being subsidized O All of the above None of the above QUESTION 14 What is the most important change in the fed funds rate since the Financial Crisis began in 2007? O it is much lower and has been essentially zero percent (0%) most of the time O It has become much more variable (ups and downs) O It no longer increases shortly before a recession (gray shaded…
Refer to the graph. If the initial equilibrium interest rate was 5 percent and the money supply increased by $50 billion, then the new interest rate would be Interest Rate 6 5 2 1 A B $50 100 150 200 250 300 Amount of Money Demanded ($B) Multiple Choice the same 5 percent. 3 percent. 2 percent. E 4 percent. 1 percent.
8. The reserve requirement, open market operations, and the moneysupply Consider a system of banking in which the Federal Reserve uses required reserves to control the money supply (as was the case in the United States before 2008). Assume that banks do not hold excess reserves and that households do not hold currency, so the only money exists in the form of demand deposits. To further simplify, assume the banking system has total reserves of $100. Determine the money multiplier as well as the money supply for each reserve requirement listed in the following table. Reserve Requirement (Percent) 15 10 Simple Money Multiplier A lower reserve requirement is associated with a Money Supply ollars) money supply. Suppose the Federal Reserve wants to increase the money supply by $100. Maintain the assumption that banks do not hold excess reserves and that households do not hold currency. If the reserve requirement is 10%, the Fed will use open-market operations to worth $ of U.S. government…
3. Assume that the reserve requirement is 20%. Also assume that banks do not hold excess reserves and there is no cash held by the public. The Fed decides that it wants 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.
6. a) If US money supply in the beginning of the year is $1148 billion. Suppose the FedBank has decided to raise the reserve ration from 10 percent to 11 percent. How itwould affect the money supply? b) If tax multiplier is -2, what is the government spending multiplier? c) In order to increase equilibrium income, either the government can increasegovernment spending or may go for tax cut? What would you suggest and why?
Assignment 11 Chapter 15 1. What are the 4 Policy tools of the Federal Reserve? A. В. С. D. 2. Using the 3 policy tools listed below, how does the Fed increase the Money Supply and Expand the Economy? A. Reserve Requirement: Decrease or Increase B. Open Market Operations: Sale or Purchase C. Discount/Fed Funds Rate: Raise or Lower
The Federal Reserve wants to increase the money supply by increasing the lending potential of commercial banks by $320 billion. It plans to use open-market operations to accomplish this goal. The current reserve requirement for commercial banks is 5 percent. Instructions: Enter your answer as a whole number. a. Will the Fed want to buy or sell government securities if sales or purchases of government securities are the only instrument used in the open-market operations? The Fed will want t (Clicca total of $1 billion in government securities. ue-rather than permanently transferring the ownership of securities to achieve its goal? commercial banks. buy b. What other option cell The Fed could use some amount of (Click to select) to effectively (Click to select)
The reserve requirement is 10%. Suppose that the Fed purchases $50,000 worth of U.S. government securities from a bond dealer, electronically crediting the dealer's deposit account at Reliable Bank. Which of the following correctly describes the immediate effect of this transaction? A. The required reserves of Reliable Bank increase by $50,000. B. The total reserves of Reliable Bank increase by $50,000. C. Reliable Bank can make $50,000 in new loans. D. The excess reserves of Reliable Bank increase by $50,000. -ம்