Question

85. A so-called “normal” Treasury yield curve most commonly tends to be: (a) flat; (b) downward sloping; (c) sloped monotonically positive; (d) shaped like a “W”.

86. Reserves held by banks over and above their required reserves and reserves held as clearing balances: (a) are known as excess reserves; (b) do not earn interest paid by the Fed; (c) can never by lent to borrowers; (d) are counted as part of the money supply as soon as they are received from the Fed.

87. The U.S. is said to have an “elastic” currency or money supply. That’s because: (a) the elasticity of the U.S. money supply with respect to its foreign exchange value equals 1.0; (b) the Federal Reserve determines the supply of currency; (c) the U.S. Treasury determines the money supply, consistent with its borrowing needs; (d) the money supply expands faster or slower depending upon the pace of real economic activity.

88. Please indicate the proper order of maturities of Treasury securities, from the shortest duration to the longest duration: (a) bonds, notes, bills; (b) bonds, bills, notes; (c) bills, notes, bonds; (d) bonds, stocks, derivatives.

Answer 1

Answer 85. (c) sloped monotonically positive;

reason- Yield curve is sloped positively to represent that higher yield is associated with longer time period.

Answer 86. (a) are known as excess reserves;

reason- Reserves over and above required reserves are known as excess reserves

Answer 87. (d) the money supply expands faster or slower depending upon the pace of real economic activity.

reason- The money supply expands faster or slower depending upon the pace of real economic activity. it means money supply is elastic.

Answer 88. (c) bills, notes, bonds;

reason- Bills are for very short time period, notes are for medium time period and bonds are for lomger time period.