Question

1. Which of the following is not a fiscal policy tool?

a. The income tax rate

b. The discount rate

c. The Earned Income Tax Credit

d. The defense budget

2. Which of the following is incorrect?

a. The reserves held in excess of required reserves are excess reserves.

b. Total reserves equal required reserves plus excess reserves.

c. The reserves held to meet the reserve requirement are required reserves.

d. Banks decide how much excess reserves to hold, so excess reserves can be positive or negative.

Answer 1

1) Solution: The discount rate

Explanation: The discount rate refers to the interest rate that Reserve Banks charge commercial banks for loans of short-term; and is among the tools of to achieve the monetary policy

2) Solution: Banks decide how much excess reserves to hold, so excess reserves can be positive or negative

Explanation: Although banks makes decision on how much excess reserves to hold, however the central bank can influence this decision with the rate of interest it pays on the reserves

answered by: anonymous