MACROECONOMICS FOR TODAY
10th Edition
ISBN: 9781337613057
Author: Tucker
Publisher: CENGAGE L
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Chapter 15, Problem 20SQ
To determine
The impact of purchasing the securities by Fed.
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If the Fed opts to employ open market operations to increase the money supply, then
a.The Fed will have to compensate for this change by increasing the discount rate
b.Bond rates will increase because the Fed must buy Treasury bonds from individuals in the market, and this will cause the demand for these bonds to increase
c.Banks will petition the Fed to increase the federal funds rate to recoup their losses
d.Government budget surpluses will be more likely to achieve
e.Bank reserves will decrease as consumers withdraw funds to purchase more Treasury Bonds and this will have an effect on the money supply via the money multiplier
34)
A decision by the Fed to raise the discount rate (rate at which Fed lends to banks) will:
a) increase output by raising the money supply and lowering the interest rate
b) decrease output by lowering the money supply and raising interest rates
c) decrease output by raising the money supply and raising interest rates
d) increase output by lowering the money supply and raising interest rates
When the Fed conducts open-market purchases,
a. it buys Treasury securities, which decreases the money supply.
b. it lends money to member banks, which decreases the money supply.
c. it buys Treasury securities, which increases the money supply.
d. it borrows money from member banks, which increases the money supply.
Chapter 15 Solutions
MACROECONOMICS FOR TODAY
Ch. 15.3 - Prob. 1YTECh. 15 - Prob. 1SQPCh. 15 - Prob. 2SQPCh. 15 - Prob. 3SQPCh. 15 - Prob. 4SQPCh. 15 - Prob. 5SQPCh. 15 - Prob. 6SQPCh. 15 - Prob. 7SQPCh. 15 - Prob. 8SQPCh. 15 - Prob. 9SQP
Ch. 15 - Prob. 10SQPCh. 15 - Prob. 11SQPCh. 15 - Prob. 1SQCh. 15 - Prob. 2SQCh. 15 - Prob. 3SQCh. 15 - Prob. 4SQCh. 15 - Prob. 5SQCh. 15 - Prob. 6SQCh. 15 - Prob. 7SQCh. 15 - Prob. 8SQCh. 15 - Prob. 9SQCh. 15 - Prob. 10SQCh. 15 - Prob. 11SQCh. 15 - Prob. 12SQCh. 15 - Prob. 13SQCh. 15 - Prob. 14SQCh. 15 - Prob. 15SQCh. 15 - Prob. 16SQCh. 15 - Prob. 17SQCh. 15 - Prob. 18SQCh. 15 - Prob. 19SQCh. 15 - Prob. 20SQ
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- Suppose that the Bank of Canada determines that the Canadian economy is currently overproducing. What can the Central Bank do to slow down economic activity? a. The Central bank can pursue an expansionary monetary policy by increasing the money supply, causing a decrease in the interest rate. As a result, real GDP will increase and the price level will increase. b. The Central bank can pursue a contractionary monetary policy by decreasing the money supply, causing a decrease in the interest rate. As a result, real GDP will decrease and the price level will decrease c. The Central bank can pursue a contractionary monetary policy by decreasing the money supply, causing an increase in the interest rate. As a result, real GDP will decrease and the price level will decrease. d. The Central bank can pursue a contractionary monetary policy by decreasing the money supply, causing an increase in the interest rate. As a result, real GDP will decrease and the price level will increase e. The…arrow_forwardWhen conducting an open-market sale, the Fed a. buys government bonds, and in so doing increases 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. sells government bonds, and in so doing decreases the money supply.arrow_forwardB. induces households to increase consumption. C. increases aggregate demand for goods and services. D. All of the above are correct. How would the Fed use open market operations (OMO) to raise interest rates? A. The Fed sells bonds to banks. B. The Fed buys bonds from banks. C. The Fed reduces the discount rate. D. The Fed sells gold certificates.arrow_forward
- If the Fed increases the money supply, in the short run interest rates will ________ and investment spending will __________. Rise; go down Decline; go down Rise; increase Decline; increasearrow_forwardThe Board of Governors a. sets the Discount Rate b. sets the requirement for purchasing equities c. sets margin requirements for stock purchases Both a. and c. All of the above QUESTION 9 The Federal Reserve Goal Independence includes which of the following? a. The ability to set goals of monetary policy. b. The operation of the Fed Funds Window. c. The performance of Open Market stock purchases. Both a. and c. O All of the above QUESTION 10 Fed actions affect a. inflation b. money supply c. interest rates Both a. and c. All of the abovearrow_forward25. The Fed has in recent years set monetary policy by choosing a target for the federal funds rate, a short-term interest rate at which banks make loans to one another. This statement is a. true b. false c. There is not enough information to answer the question.arrow_forward
- The fed funds rate and the discount rate are interest rates banks charge households to borrow money overnight. A.) True B.) Falsearrow_forward(c) Monetory policy authorities will respond to the change in price level that occurred in part (b). How might the central bank respond to the change you described in part (b)? (d) Draw a correctly labeled graph of the money market. a. Label the equilibrium interest rate. b. Show on your graph the change in money supply that will occur due to the monetary policy described in part (c). c. Show on your graph the change in interest rates that will occur due to the monetary policy described in part (c). (e) At the same time, assume that policymakers at the Bank of England enforce an expansionary monetary policy.arrow_forwardIf there is a recession, the Fed would most likely encourage banks to provide loans by: a. buying government securities b. raising the discount rate c. raising the required reserve ratio d. raising the federal funds rate e. selling government securitiesarrow_forward
- . In April 2022 theFederal Reserve boosted its target for the Federal funds rate for the first time in 14 years, increasing it from a 10-year low of .25% to 4.25%. What role did the Biden Administration have in this decision? A. None; the Fed is not accountable to the executive branch of government.B. Some; most but not all of the people who voted for this change are appointees of the Bush Administration.C. Considerable; if the Bush Administration were unhappy with the decision, it could force the resignation of those who voted in ways it did not like.D. Total; policy makers at the Fed serve at the pleasure of the President.arrow_forwardThe Fed can increase the money supply by conducting open market operations with member banks. To do this the Fed purchases securities and lowers the discount rate. sells securities and raises the discount rate. sells securities and loweris the discount rate. purchases securities and raises the discount rate.arrow_forwardThe 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.arrow_forward
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