The purchase of government securities from the public by the Central Bank will cause: the money supply to increase. demand deposits to decrease. the interest rate to increase. commercial bank reserves to decrease.
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The purchase of government securities from the public by the Central Bank will cause:
-
- the money
supply to increase. - demand deposits to decrease.
- the interest rate to increase.
- commercial bank reserves to decrease.
- the money
Step by step
Solved in 3 steps
- By increasing the 'Repo Rate', the RESERVE BANK can: Select one: a. increase the money supply in the market b. none of the options are correct c. provide incentives to commercial banks to lend more to public d. provide incentives to commercial banks to lend less to public{Fill in the blanks} Expansionary Monetary Policy is used to [Increase the GDP & Create Jobs / Decrease the GDP & Create Job] during a [Recession / Period of Inflation] . The Reserve will [Sell Bonds / Buy Bonds] which [Increase / Decrease] the money supply and [Increase / Decrease] interest rates. Borrowing becomes [More Expensive / Cheaper] so the GDP will grow.In modern developed economies, central banks (like the U.S. Federal Reserve System) perform at least two major tasks; they: Select one: a. conduct fiscal policy and serve as financial intermediaries. b. control the money supply and collect tax revenues. c. conduct fiscal policy and serve as lenders of last resort. d. control the money supply and regulate banks.
- Which of the following is CORRECT? the Fed Funds market is a Federal Reserve-operated market the interest rate on Fed Funds is a relatively poor indicator of liquidity in the banking system the Fed Funds market is a commercial inter-bank market borrowing from the Fed Funds market is the only way banks can make up a reserve deficiencyThe federal funds rate is the interest rate the Fed charges commercial banks. the interest rate a bank charges its best customers. the interest rate banks charge each other for overnight loans. the interest rate on a Treasury Bill.A central bank such as the Fed is different from other banks and financial institutions in that it does not____ A)provide service to individuals or businesses B) generate, stimulate, or hurt the economy C)provide any concrete banking service D) have multiple locations throughout the country
- The federal funds rate is the interest rate that: the Fed charges banks to borrow money banks charge other banks for short-term loans none of the answers given is correct the federal government charges banks to borrow money federally chartered banks charge their customers for commercial loansAn open market purchases of government bonds by the federal reserve results in ___ in the supply of money and ___ in interest rates. A. An increase/ a decrease B. A decrease / a decrease C. An increase / an increase D A decrease / an increaseOne of the major functions of commercial banks is credit creation. Commercial banks create credit by advancing loans and purchasing securities. They lend money to individuals and businesses out of deposits accepted from the public. Commercial banks have to maintain a specified percentage of their deposits as liquidity which is set by the central bank. This reserve requirement controls the extent to which commercial banks can grow money in the economy. Assuming you only have one commercial bank in your economy, a reserve requirement of 20% and an initial deposit of 200. REQUIRED: A. Show for the first four days and the last day the balance sheet of your commercial bank.
- Which is the following action should NOT be taken if the central bank aims to increasing the purchasing power of the people? Increase the bank's ability to lend by lowering the reserve requirement rate. Increase the supply of money by buying government securities from the public. Announce the new bank lending rate (BLR) at a lower level than before. Reduce the personal tax rate and minimize the rate of the indirect tax such as goods and services tax (GST).The federal funds rate is the interest rate that banks charge one another for short-term (typically overnight) loans. When the Federal Reserve uses open-market operations to sell government bonds, the quantity of reserves in the banking system_________(increase/decrease), banks' demand for borrowed reserves ________(rises/decline) , and the federal funds rate_______(increases/decreases).A decrease in money demand is likely to: Multiple Choice increase interest rates. decrease money supply. decrease Real GDP. increase nominal output.