Question

Principles of Macroeconomics

Q.1 Which of the following is a liability on the balance sheet of the Federal Reserve System?

A.currency

B.mortgage-backed securities

C.U.S. government securities

D.None of the above are correct because they are all assets of the Federal Reserve.

Q.2 Long-term interest rates fluctuate ________ short-term interest rates because long-term interest rates are a(n) ________ of ___________.

A.less than; average; the rate of inflation.

B.more than; average; the rate of inflation.

C.less than; average; short-term interest rates.

D.about the same; average; short-term interest rates.

Q.3 With greater optimissism about the expected future profits, business firms will ________investment, the
demand for loanable funds will_____________and the real interest rate will___________.

A. decrease; decrease; fall.

B.decrease; increase; fall

C.decrease; decrease; rise

D.increase; increase; rise

Q.4 The Taylor rule sets the federal funds rate (FFR ) using the following formula, where INF is the inflation rate and GAP is the output gap.

A.FFR = 2 + INF + 0.5(INF + 2) - 0.5GAP

B.FFR = 2 + INF + 0.5(INF - 2) + 0.5GAP

C.FFR = 0.5 + INF + 2(INF + 0.5) - 2GAP

D.FFR = 0.5 + INF + 2(INF - 0.5) + 2GAP

Q.5 In October 2008, President Bush enacted the Alternative Minimum Tax Relief Act of 2008, which resulted in lower taxes on labor income. According the supply-side view, this would result in

A.a movement along the supply of labor curve.

B. a leftward shift in the supply of labor curve.

C. an increase in the tax wedge.

D.a rightward shift in the supply of labor curve.

Q.6 Limitation(s) of using expansionary monetary policy to fight a severe recession include

A.long-term interest rates might not be sensitive to changes in short-term interest rates

B.the president has the ability to override the Fed's policy.

C.congress has the ability to override the Fed's policy.

D.investment might not be sensitive to changes in long-term interest rates.

E. A and D are correct.

Answer 1

1) Currency..

(The dollar bills treated as liabilities when they are in circulation)..

2) less than; average; short-term interest rates.

(Short term loans are more volatile in nature and changes very mush that's why they are more than long term loans and long term us calculated based upon this different short term loans)..

3) increase; increase; rise

(As the firm's expect higher profits in the future they will buy more plant and increase investment. hence the demand for funds will automatically rises and real interest will also rise)..

4)

FFR = 2 + INF + 0.5(INF - 2) + 0.5GAP

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