If the Federal Reserve wanted to offset a cyclical downturn in overall expenditures, it should   sell bonds to decrease the money supply thus increasing the interest rates to decrease business investment and therefore decreasing the overall level of expenditures and decreasing the price level.   buy bonds to decrease the money supply thus increasing the interest rates to decrease business investment and therefore decreasing the overall level of expenditures and decreasing the price level.   sell bonds to increase the money supply thus decreasing the interest rates to increase business investment and therefore increasing the overall level of expenditures and increasing the price level.   buy bonds to increase the money supply thus decreasing the interest rates to increase business investment and therefore increasing the overall level of expenditures and increasing the price level.

To increase the money supply, the Fed can Group of answer choices buy government bonds or decrease the discount rate. buy government bonds or increase the discount rate. sell government bonds or decrease the discount rate. sell government bonds or increase the discount rate.

Analyse why modern central banks have tended to keep the interest rate at a given level rather than concentrating on maintaining fixed the supply of money.

What are the goals of monetary policy? maximum employment and stable prices zero unemployment and zero inflation zero unemployment and stable prices maximum employment and zero inflation The Federal Reserve seeks to achieve these goals by choosing between maximum employment and stable prices in the long run. maintaining both the money supply and short-term interest rates at low levels. keeping the growth rate of money consistent with the growth rate of the natural rate of output. targeting short-term interest rates and the money supply.

Both increases in the price level and increases in real GDP will decrease the demand for money True False

The banking system is vulnerable because a decrease in initial deposits in the banking system during a financial crisis would cause a a) Equal effect on money supply b) Equal but opposite effect on money supply c) Change of the Federal Reserve Chairman or Chairwoman d) Multiplier effect downward in the macroeconomy

Suppose that the money supply increases by 20 percent. If there is no inflation, what does the quantity theory of money tell us must happen to real GDP? It must increase by more than 20 percent. It must increase by less than 20 percent. It must increase by exactly 20 percent. None of the above are correct.   Which of the following statements is true of the federal funds market? No banks are refused loans in the federal funds market. In the federal funds market, banks with a shortage of reserves borrow funds, while banks with an excess of reserves lend them out. The interbank lending system works more efficiently in periods of financial panic than in periods of financial stability. Although the federal funds market aims to provide liquidity to needy banks, it is not very popular as overnight loans are logistically inefficient for large banks.   On a graph with real GDP growth on the x-axis and the unemployment rate on the y-axis, you plot each year's values for the United States as…

Two tools the Federal Reserve would use to implement the decision to increase the federal funds would be Open market operations and the IOER rate. Show in a graph of the federal funds market the effect the tools mentioned above have on this market. What effect do the two tools used have on the interest rates faced by firms and households? What do you expect to happen to the money supply? What do you expect to happen to the inflation rate? How would you expect all these decisions to affect employment in the economy? How do the effects on the money supply and inflation rate align with what the Fed was hoping to attain(to achieve maximum employment and inflation at the rate of 2 percent over the longer run)?

Explain why the Reserve Supply is perfectly elastic at Discount Window Rate.

Wide Bank is a depository institution that suffers from a lack of liquidity. Would the bank be eligible for primary credit? No, because only financially strong institutions with ample capital are allowed to borrow from the Fed in primary credit. Yes, because depository institutions that had exhausted all of their other sources of funds can borrow money at the discount window in primary credit. Which of the following is one of the causes of the credit crunch of 2007? Primary credit The "stigma effect" Secondary credit Seasonal credit