Follow a $1 billion purchase of U.S. Treasury bonds by the Fed from commercial banks. Discuss the changes that occur to the balance sheet of the banking system and the balance sheet of the Fed.
What will be an ideal response?
The balance sheet of the banking system doesn't change in size. The liabilities of the banking system do not change, and the total assets don't change, the composition of assets changes, with the asset of securities decreasing by $1 billion and the asset of reserves increasing by $1 billion. For the Fed the balance sheet increases by $1 billion on both sides. The asset of securities increases by $1 billion and the liability of reserves increases by $1 billion.
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When the euro falls in value relative to other currencies, then
A) goods imported into Europe rise in price. B) European exports rise in price. C) neither European exports nor imports rise in price. D) both European exports and imports rise in price.
Deflation is defined as a situation in which
A) the rate of inflation is below 2 percent. B) the average of all prices of goods and services in an economy is falling. C) the value of the dollar is rising relative to other currencies. D) the Gross Domestic Product's growth rate is less for a given quarter than it was for the prior quarter.
which of the following will shift the aggregate demand to the right
a. increase in government purchases b. reduction in consumer spending c. selling government securities by the federal reserve bank d. downsizing of corporate investment spending e. all of the above
The variables on the vertical and horizontal axes of the aggregate demand and supply graph are
a. the price level and real output. b. real output and employment. c. employment and the inflation rate. d. the value of money and the price level.