Question

The interest rate charged by the central bank when it makes loans to commercial banks is called the

Select one:

a. reserve requirement.

b. prime rate

c. discount rate

d. open market rate.

A bank is more likely to face bank runs by depositors if it

Select one:

a. is solvent.

b. if it thoroughly evaluate risks before lending.

c. keeps more of its money it reserves.

d. makes risky loans to investors.

A contractionary monetary policy reduces GDP by

Select one:

a. raising interest rates and discouraging investment and consumption spending.

b. lowering interest rates and encouraging investment and consumption spending.

c. lowering interest rates and discouraging investment and consumption spending.

d. raising interest rates and encouraging investment and consumption spending.

A contractionary or tight monetary policy

Select one:

a. lowers interest rates.

b. increase bank’s lending ability.

c. reduces borrowing.

d. stimulates borrowing.

A critical function of the private banking system is ________?

Select one:

a. Providing a maximum number of loans for customers

b. Minimizing risks for investors.

c. Establishing the links between savers and borrowers.

d. Keeping transactions records to assist the government in collecting taxes.

A decision by the Federal Reserve to change reserve requirements for banks is an example of:

Select one:

a. fiscal policy.

b. federal budget policy.

c. government executive policy.

d. monetary policy.
A goal of monetary policy is

Select one:

a. promoting economic growth.

b. reducing government deficits.

c. keeping taxes low.

d. promote equity in income distribution.

An expansionary monetary policy affects aggregate demand

Select one:

a. indirectly, by increasing interest rates and decreasing the available quantity of loans, which reduces spending.

b. directly by decreasing investments.

c. indirectly, by lowering interest rates and increasing the available quantity of loans, which stimulates spending.

d. directly, by increasing government expenditure.

An open market operation decreases the money supply when the Federal Reserve

Select one:

a. buys bonds from banks, which increases bank reserves.

b. sells bonds to banks, which increases bank reserves.

c. sells bonds to banks, which decreases bank reserves.

d. buys bonds from banks, which decreases bank reserves.

An open market purchase of US Treasury bonds by the central bank will ________ credit conditions for private firms.

Select one:

a. restrict

b. cause a government budget deficit.

c. ease

d. not change

Answer 1

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