when the federal reserve makes an open market purchase, the fed: course hero

What happens when the Federal Reserve makes an open market purchase?

When the Federal Reserve makes an open market purchase, the reserves of the banking system will. increase. When the federal reserve makes an open market purchase, the amount of money available for the banking system to loan.

How does the reserve requirement affect the money supply?

Suppose the reserve requirement is 10%. a. If the Federal Reserve decreases the reserve requirement, banks can lend out: more reserves, thus increasing the money multiplier and increasing the money supply. rarely changes the reserve requirement and does not use the reserve requirement as a major monetary policy tool.

What happens when the Federal Reserve decreases the discount rate?

If the Fed were to decrease the discount rate, banks will borrow: more reserves, causing an increase in lending and the money supply. Consider how the following scenario would affect the money supply and, as a result, interest rates in the economy. a. When the Federal Reserve increases the discount rate, banks will borrow:

What is fedfed and how does it work?

Fed gives the securities to the public; the public pays for the securities by writing checks that when cleared will decrease commercial bank reserves at the Fed.

What is the effect of an increase in the price level?

a. As a result of an increase in the price level, the cost of borrowing increases, which causes people to buy fewer cars. Interest-rate effect. When the price level decreases, restaurants become busier as more people purchase restaurant meals. Real-balances effect.

Why is the aggregate supply curve vertical?

The long-run aggregate supply curve is vertical because: all input prices are flexible in the long run. Money is: anything that both buyers and sellers will accept in exchange for goods and services.

When is money used as a unit of account?

it is used to transfer wealth from the present to the future. Money is a unit of account when: it is used to communicate the market value of goods and services. For each of the following scenarios, determine whether money is being used as a medium of account, store of value, or unit of account. a.

Why does the European economy expand?

This causes: an increase in aggregate demand, shifting the aggregate demand curve to the right. The government decides to decrease the amount it spends on the military.

What is the start of the recession?

start of the recession and the time it takes to recognize that the recession has started. If the government wishes to increase the level of real GDP, it might reduce. taxes. When the federal government uses taxation and purchasing actions to stimulate the economy it is conducting. fiscal policy.

Why is fiscal policy so difficult?

Using fiscal policy to stabilize the economy is difficult because. there are time lags involved in the use of fiscal policy. If Congress passes legislation to increase government purchases to counter the effects of a recession, then this would be an example of a (n) expansionary fiscal policy.

What is the timing problem in fiscal policy?

fiscal policy. One timing problem in using fiscal policy to counter a recession is the "implementation lag" that occurs between the. time fiscal action is taken and the time that the action has its effect on the economy.