2. use of money and credit controls to influence macroeconomic outcomes. When the Fed buys government bonds, A) The money supply increases and the federal funds rate increases. All monetary policy decisions of the Federal Reserve--including buying and selling securities--are made independently of the borrowing decisions of the federal government and are intended solely to fulfill the mandate set out for the Federal Reserve by law- … Selling government securities and raising the discount rate. You've reached the end of your free preview. HSC 422 Exam 3 from 2017. b. sells government bonds from its portfolio to the public. If Federal Reserve officials attempt to pull the economy out of a recession when the price level is relatively stable, the policies they would most likely use would be to: Buy government securities and decrease the discount rate. Which combination of government policies is most likely to reduce the inflation rate? Government bonds issued in foreign currency have drawn a growing amount of interest in recent years. The purpose of an expansionary money policy is to: Increase the money supply to shift the aggregate demand curve rightward. ... buys Treasury bonds. Want to read all 4 pages? Which set of actions by the Fed would be most consistent with this policy? Sell government securities in the open market and decrease government spending. In which case would the quantity of money demanded by the public tend to increase by the greatest amount? The Federal Reserve can increase aggregate demand by: Decreases the interest rate and increases aggregate demand. A) increase by $100. The interest rate decreases and nominal GDP increases. In late November 2008, the Federal Reserve started buying $600 billion in mortgage-backed securities. How did we get to this point? ... OTHER QUIZLET SETS. Animal Behavior 2nd Half of Quarter Final Stuff. The value of the multiplier for this economy is 6.25. 51 terms. TERM Spring '16 TAGS Business, Monetary Policy, Federal Reserve, Federal Reserve System; Share this link with a friend: Copied! The interest rate that banks use as a benchmark rate for interest rates on a wide range of loans to businesses and individuals is the: The prime interest rate will be the same as the discount rate, The prime interest rate rises and falls with the Federal funds rate. The Fed buys securities when it wants to increase the flow of money and credit, and sells securities when it wants to reduce the flow. If the multiplier is 5, then the MPC is? The economy is experiencing high unemployment and a low rate of economic growth and the Fed decides to pursue an expansionary money policy. A decrease in the interest rate will cause a(n): Increase in the amount of money held as an asset. Which monetary policy would most likely increase aggregate demand? The principle of monetary neutrality implies that an increase in the money supply will a. The tools of monetary policy for altering the reserves of commercial banks are the: Discount rate, reserve ratio, and open-market operations. By March 2009, it held $1.75 trillion of bank debt, mortgage-backed securities, and Treasury notes; this amount reached a peak of $2.1 trillion in June 2010. Which policy changes by the Fed would reinforce each other to achieve that objective? Therefore, the Federal Reserve decides to pursue a policy to reduce the inflationary pressure. 1. For QE, the Fed generally want to to buy older Treasuries, to keep long term rates down. The Fed buys securities when it wants to increase the flow of money and credit, and sells securities when it wants to reduce the flow. 0.05 0.5 0.6 0.8 In a certain economy, when income is $200, consumer spending is $145. When the Fed buys U.S. government securities, the money supply a. decreases because there is an increase in the required reserves of the bond dealer's bank. Which one of the following is a tool of monetary policy for altering the reserves of commercial banks? Disclosures the Fed filed over the weekend show it owning nearly $430 million in individual bonds and $6.8 billion in ETFs. Assume the economy faces high unemployment but stable prices. Quantitative easing was used by the Federal Reserve from 2008 through 2014 to alleviate the financial effects of the Great Recession. Government securities include treasury bonds, notes, and bills. Award: 1.00 point 583. 582. The Reserve Bank purchases or sells bonds in exchange for ES balances. Award: 1.00 point When the Fed buys and sells U.S. government bonds in an effort to regulate the money supply, it is engaged in _____. The major purpose of the Federal Reserve buying government securities in open market operations is to: The most frequently used monetary device for achieving price stability is: A headline reads: "Fed Cuts the Federal Funds Rate by Half a Point." This headline indicates that the Federal Reserve is most likely trying to: When the Fed wants to lower the Federal funds rate, it: When the Federal Reserve Banks decide to buy government bonds from banks and the public, the supply of reserves in the Federal funds market: Increases and the Federal funds rate decreases. When the Fed buys $100 worth of bonds from a primary dealer, reserves in the banking system. Suppose the economy experiences a recessionary gap. The Fed holds government securities, and so do individuals, banks, and other financial institutions such as brokerage companies and pension funds. With these transactions, the Fed can expand or … This suggests that: A newspaper headline reads: "Fed Cuts Federal Funds Rate for Fifth Time This Year." Which action by the Fed would be most consistent with this policy? When the Fed buys and sells U.S. government bonds in an effort to regulate the money supply, it is engaged in ___________. Fed has a couple of ways to buy Treasuries... the bonds are issued by the Treasury, but are then held by many banks, funds, companies,etc. Open market operations consists of the buying or selling of government securities. The Fed turns this debt into money by removing those Treasurys from circulation. As mentioned earlier, during a recession the Fed usually buys short-term government bonds, which has the effect of driving down short-term interest rates. $175.00. The feds are only interested in gathering more debt from america at the moment. 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