Based on the information presented in the video, which of the following is likely to occur as a result of the Fed decreasing the money supply? ... Consumers will spend less money, causing an economic slowdown . The unemployment rate may rise.
What happens when the Federal Reserve lowers the discount rate?
When the Fed lowers the discount rate, this increases excess reserves in commercial banks throughout the economy and expands the money supply . On the other hand, when the Fed raises the discount rate, this decreases excess reserves in commercial banks and contracts the money supply.
Which of the following is likely to occur as a result of the Fed decreasing the money supply?
Based on the information presented in the video, which of the following is likely to occur as a result of the Fed decreasing the money supply? ... Consumers will spend less money, causing an economic slowdown . The unemployment rate may rise.
What is most likely to happen when the Federal Reserve decreases the money supply?
A reduced money supply increases interest rates , which makes borrowing more expensive and slows corporate investing.
What happens when the Fed decreases money supply?
By decreasing the amount of money in the economy, the central bank discourages private consumption . Increasing the money supply also increase the interest rate, which discourages lending and investment. The higher interest rate also promotes saving, which further discourages private consumption.
Why does Fed pay interest to banks quizlet?
It offers banks financial protection to keep consumers from panicking. ... Why does the Fed pay interest to banks? It is interest on money held in reserve.
Who determines open market operations?
The short-term objective for open market operations is specified by the Federal Open Market Committee (FOMC) . OMOs are conducted by the Trading Desk at the Federal Reserve Bank of New York. The range of securities that the Federal Reserve is authorized to purchase and sell is relatively limited.
What is the federal discount rate right now?
| This week Year ago | Federal Discount Rate 0.25 0.25 |
|---|
What impact would an increase in the discount rate have?
An increase in the discount rate will increase the cost of borrowing from the Federal Reserve for commercial banks .
When the legal reserve requirement is lowered?
When the Federal Reserve decreases the reserve ratio, it lowers the amount of cash that banks are required to hold in reserves , allowing them to make more loans to consumers and businesses. This increases the nation’s money supply and expands the economy.
What is the result of an increase in the money supply?
An increase in the supply of money typically lowers interest rates , which in turn, generates more investment and puts more money in the hands of consumers, thereby stimulating spending. Businesses respond by ordering more raw materials and increasing production.
When the Federal Reserve wants to decrease the money supply it uses?
The purchase of securities increases the amount of reserves in the system, thereby increasing loan activity. 2. The Federal Reserve can decrease the money supply by selling U.S. Treasury securities .
In what three ways could the Federal Reserve increase the money supply?
- Reserve ratios. ...
- Discount rate. ...
- Open-market operations.
Who controls the money supply?
The Fed controls the supply of money by increas- ing or decreasing the monetary base. The monetary base is related to the size of the Fed’s balance sheet; specifically, it is currency in circulation plus the deposit balances that depository institutions hold with the Federal Reserve.
How does money supply affect the economy?
An increase in the money supply means that more money is available for borrowing in the economy. This increase in supply–in accordance with the law of demand–tends to lower the price for borrowing money . When it is easier to borrow money, rates of consumption and lending (and borrowing) both tend to go up.
Why can’t the Fed control the money supply perfectly?
Why can’t the Fed control the money supply perfectly? The Fed cannot control the money supply perfectly because: (1) the Fed does not control the amount of money that households choose to hold as deposits in banks ; and (2) the Fed does not control the amount that bankers choose to lend.
