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)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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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
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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 are tools in its monetary toolbox?
Assume that the Federal Reserve finds that the banking system has inadequate reserves, that is, the supply curve falls in the downward sloping portion of the demand curve for reserves. Under an ample reserves regime, we expect the Federal Reserve to A use open market purchases of government securities to reduce the supply curve of reserve. B use open market purchases of government securities to increase the supply curve of reserve. C use open market sales of government securities to reduce the supply curve of reserve. D use open market sales of government securities to increase the supply curve of reserve.
Suppose that the Fed Reserve conducts sterilized foreign exchange intervention of purchasing $500 million of foreign assets. As a result, O O O O O monetary base increases by $500 million. the Fed's domestic asset holdings increase by $500 million. total liabilities on the Fed's balance sheet will be unaffected. total money supply increases by $500 million. total assets on the Fed's balance sheet increase by $500 million.
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The diagrams below depicts the initial equilibrium in the market for reserves. Draw in the diagrams, and explain, how the equilibrium Fed funds rate and the quantity of reserves would change as a result of each policy stated below. a) The Fed conducts a large-scale open market purchase of securities. Federal Funds Rate " C " Federal Funds Rate e b) The Fed increases the interest on reserves above the initial fed funds rate. L NBR for R NBR Quantity of Reserves, R R Quantity of Reserves, R
Assume that the Federal Reserve (Fed) sets the federal funds rate target at 4% and conducts open market operations to hit the 4% target. Shift the appropriate curve to show the Fed meeting its target. Federal funds rate 10 9 8 7 6 5 3 2 1 0 10 20 Supply of reserves Federal funds rate (target) Federal funds rate (current) 30 40 50 60 Reserves at the Fed 70 80 The Federal Reserve 90 100 raised the discount rate. lowered the discount rate. O sold U.S. Treasury securities. bought U.S. Treasury securities. Demand for reserves
Which of the following is NOT true about discount rate and statutory reserve requirement? Both are monetary policy instruments. O an increase in either one of them will reduce the money supply. a reduce in either one of them will increase the amount of loans by the commercial banks. a change in discount rate is more effective in affecting the money supply than a change in statutory reserve requirement
Assume the Fed is trying to decide whether to lower the required reserve ratio to 8%. Currently, the required reserve ratio is 10%. If banks keep no excess reserves, ho w much more would the money supply increase if the Fed lowers the reserve ratio when someone deposits $500 into a checking account?
Explain the effect on the demand for reserves or the supply of reserves of the following Fed policy action: A decrease in the discount rate. A. This would decrease the supply of reserves. B. This would lower the interest rate at which the demand curve becomes horizontal. C. This would raise the interest rate at which the demand curve becomes horizontal. O D. This would lower the interest rate at which the supply for reserves becomes horizontal.