Pre-Test Chap 33 e18 - Pre-Test Chap 33 e18 Student: _ 1....

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Pre-Test Chap 33 e18 Student: ___________________________________________________________________________ 1. Assume that there is a 25 percent reserve ratio and that the Federal Reserve buys $4 billion worth of government securities. If the securities are purchased from the public, this action has the potential to increase bank lending by a maximum of: A. $4 billion, but only by $1 billion if the securities are purchased directly from commercial banks B. $4 billion, but by $16 billion if the securities are purchased directly from commercial banks C. $16 billion, and also by $16 billion if the securities are purchased directly from commercial banks D. $20 billion, and also by $20 billion if the securities are purchased directly from commercial banks 2. When the Fed buys government securities in the open market, it: A. Decreases the excess reserves of the banking system, reducing excess reserves for overnight loan in the Federal funds market, thus lowering the Federal funds rate B. Increases the excess reserves of the banking system, reducing excess reserves for overnight loan in the Federal funds market, thus lowering the Federal funds rate C. Decreases the excess reserves of the banking system, reducing excess reserves for overnight loan in the Federal funds market, thus increasing the Federal funds rate D. Increases the excess reserves of the banking system, raising excess reserves for overnight loan in the Federal funds market, thus lowering the Federal funds rate 3. If the dollars held for transactions purposes are, on the average, spent four times a year for final goods and services, then the quantity of money people will wish to hold for transactions is equal to: A. Four percent of nominal GDP B. 25 percent of nominal GDP C. Nominal GDP multiplied times 4 D. Nominal GDP divided by 25 4. The interest rate that banks use as a benchmark rate for interest rates on a wide range of loans to businesses and individuals is the: A. Discount rate B. Federal funds rate C. Prime interest rate D. Real interest rate 5. The purpose of an expansionary money policy is to: A. Increase aggregate demand B. Decrease aggregate demand C. Increase investment demand D. Decrease investment demand
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6. Refer to the above graphs, in which the numbers in parentheses near the AD 1 , AD 2 , and AD 3 labels indicate the level of investment spending associated with each curve, respectively. All numbers are in billions of dollars. The interest rate and the level of investment spending in the economy are at point D on the investment demand curve. To achieve the long-run goal of a noninflationary full-employment output Qf in the economy, the Fed should: A. Decrease aggregate demand by increasing the interest rate from 2 to 4 percent B. Decrease aggregate demand by increasing the interest rate from 4 to 6 percent C. Increase aggregate demand by decreasing the interest rate from 4 to 2 percent D. Increase the level of investment spending from $120 billion to $150 billion 7. Which of the following best describes what occurs when monetary authorities sell government securities?
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This note was uploaded on 05/23/2010 for the course ECON 101 taught by Professor Keep during the Spring '10 term at Glendale Community College.

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Pre-Test Chap 33 e18 - Pre-Test Chap 33 e18 Student: _ 1....

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