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1Of the following true statements, which statement might be a reason that budget deficits make interest rates go up? Tax revenue collected to make interest payments on the debt is given to Americans whocan then use it to make purchases.They represent the difference between tax revenue and government expenditures.Large budget deficits reduce the strength of the domestic currency.The increased demand for loanable funds in the private market will drive interest rates up.CONCEPTInterest Rates2Which of the following is false about budget deficits?They are financed with tax revenue or new debt.They can affect long run RGDP.They represent the difference between tax revenue and government expenditures.They typically happen when using contractionary fiscal policy.CONCEPTEconomic Growth3Which of the following is NOT a way that the Fed uses the open market to control the money supply?The Fed dictates the amount of money that banks must keep in their vaults. The Fed buys U.S. Treasury securities.
The Fed gives bondholders cash in exchange for securities. To remove money from circulation, the Fed sells U.S. Treasury securities for cash. CONCEPTOpen Market Operations4What happens during a bank run?Banks lower interest rates to encourage loans to households and businesses.Many depositors demand their funds to be repaid.Depositors increase their accounts due to high-interest rates.Creditors demand their accounts to be settled with banks.CONCEPTFractional Gold Standard/Fiat Currency5Select the TRUE statement below regarding banking during the 19thcentury.There was not much need for a central banking system.Currency traders did not make a lot of money.