Suppose the Fed decided to sell $250 billion worth of government securities in the open market (assume all payments are are directly deposited into or withdrawn from the banking system). What impact would this action have on the economy? Specifically, answer the following questions: Instructions: Enter your responses as a whole number. If the lending capacity or aggregate demand falls be sure to include a negative sign (-) with your answer. a. How will M1 be affected initially? 0 no initial change to M1 0 not enough information to answer 0 increase by $250 billion Odecrease by $250 billion b. By how much will the banking system's lending capacity change ifthe reserve requirement is 10 percent? $ :| billion c. How must interest rates change to induce investors to utilize this change in lending capacity? Interest rates must (Click to select v . d. By how much will aggregate demand initially change if investors change their behavior because of this change in available credit? $ :| billion e. Under what circumstances would the Fed be pursuing such an open market policy? 0 recession 0 expansion f. To attain those same objectives, what should the Fed do with the (i) Discount rate? f. To attain those same objectives, what should the Fed do with the (i) Discount rate? 0 increase 0 decrease (ii) Reserve requirement? 0 increase 0 decrease Money supply {in billions) $200 $360 $600 $1116 Interest rate 4.5% 4.5% Rate of investment [in billions $34.5 $34.5 Instructions: Enter your responses as a percentage rounded to one decimal place. a. At what rate of interest does the liquidity trap emerge? E919 b. At what rate of interest does investment demand become totally inelastic? :96 The Economy Tomorrow Match the statement with either a Monetarist or Keynesian perspective. a. The interest rate should be targeted not the money supply. Monetarist Keynesian b. Fixed money supply targets are desirable. Monetarist Keynesian c. Changes in government spending (G) and taxes (T) don't alter the velocity of money (V) Keynesian .MonetaristThe current chairman of the Federal Reserve is Multiple Choice O Janet Yellen. O Ben Bernamke. O Jerome Powell. O Alan Greenspan.Suppose commercial banks have no excess reserves. Then new deposits totaling $1 billion come into the banking system. The required reserve ratio is 20 percent. What is the maximum amount by which banks can increase deposits in the entire banking system? 0$5.0 billion C3$0.5 billion 0$2.0 billion 0$2.5 billion In order to decrease the money supply, the Fed can Multiple Choice O Raise the reserve requirement, increase the discount rate, or buy bonds. O Lower the reserve requirement, decrease the discount rate, or sell bonds. O Raise the reserve requirement, increase the discount rate, or sell bonds. O Lower the reserve requirement, increase the discount rate, or buy bonds.Which of the following is the market where reserves can be borrowed by one bank from another bank for very short periods of time? Multiple Choice O Money market. O Commercial paper market. O Foreign exchange market. O Federal funds market.When the Fed wishes to increase the reserves of the member banks, it Multiple Choice O Raises the reserve requirement. O Sells securities. O Buys securities. O Raises the discount rate.An open market purchase occurs when the Fed Multiple Choice O Buys bonds from the public, decreasing bank reserves. O Buys bonds from the public, increasing bank reserves. O Sells bonds to the public, decreasing bank reserves. O Sells bonds to the public, increasing bank reserves.All of the following are tools available to the Fed for controlling the money supply except Multiple Choice O The reserve requirement. O The discount rate. O Open market operations. O Taxes.Which of the following represents the lending capacity of an entire banking system? Multiple Choice O 1 : (required reserve ratio). O Total reserves - required reserves) xmoney multiplier. O Total reserves - required reserves. O Required reserve ratio *total deposits.Monetary policy involves the use of money and credit controls to Multiple Choice O Shift the aggregate demand curve. O Shift the aggregate supply curve. O Move the economy along the aggregate supply curve. O Move the economy along the aggregate demand curve.Which of the following services is performed by the regional Federal Reserve banks? Multiple Choice O Holding bank reserves. O Issuing government bonds. O Determining open market operations. O Bailing out or liquidating failed banks