Scenario 13.2?Assume the Following Conditions Hold

question 65

Multiple Choice

Scenario 13.2?Assume the following conditions hold.
Now the Federal Reserve engages in an open market operation by purchasing $1 billion worth of government bonds from private bond dealers, who then deposit the $1 billion in the banks. This acts to lower the equilibrium interest rate by 2 percent.
a.At all banks, excess reserves are zero.
b.The deposit expansion multiplier is 3.
c.The spending multiplier is 5.
d.The initial equilibrium level of national income is $500 billion.
e.The initial equilibrium interest rate equals 6 percent.
f.The investment spending function is as illustrated in the figure below.

-Refer to Scenario 13.1. What is the ultimate change in the money supply following the open market operation by the Fed?

• A) −$3 billion
• B) −$0.33 billion
• C) +$1 billion
• D) +$2.01 billion
• E) +$5.2 billion

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Definitions:

Budgeted Fixed Manufacturing Overhead

The estimated total fixed costs required for the manufacturing process, planned in advance for a specific period.

Materials Price Variance

The difference between the actual cost of materials used in production and the budgeted or standard cost, indicating how effectively a company controls its material costs.

Standard Costs

Predetermined costs for materials, labor, and overhead that are used for budgeting and cost control purposes.

Raw Materials

The unprocessed natural materials or substances used in the initial stages of production or manufacturing.