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1-C 2-B 3-C 4-D 5-A 6-C 7-B 8-B 9-B 10-B
1. If the Congress passes legislation to cut taxes to counter the effects of a severe recession, then this would be an example of a:
A. Political business cycle
B. Contractionary fiscal policy
C. Expansionary fiscal policy
D. Nondiscretionary fiscal policy
2. The amount by which government expenditures exceed revenues during a particular year is the:
A. public debt.
B. budget deficit.
D. GDP gap.
3. As a percent of GDP, the United States public debt is:
A. the highest among major industrial nations.
B. the lowest among major industrial nations.
C. lower than the public debts of several other major industrial nations.
D. higher than the percentages for Canada, Germany, and Italy.
4. Currency in circulation is part of:
A. M1 only.
B. M2 only.
C. neither M1 nor M2.
D. both M1 and M2.
5. The purchasing power of money and the price level vary:
B. directly during recessions, but inversely during inflations.
C. directly, but not proportionately.
D. directly and proportionately.
6. Stabilizing a nation’s price level and the purchasing power of its money can be achieved:
A. only with fiscal policy.
B. only with monetary policy.
C. with both fiscal and monetary policy.
D. with neither fiscal nor monetary policy.
7. The basic policy-making body in the U.S. banking system is the:
A. Federal Open Market Committee (FOMC).
B. Board of Governors of the Federal Reserve.
C. Federal Monetary Authority.
D. Council of Economic Advisers.
8. Other things equal, if the required reserve ratio was lowered:
A. banks would have to reduce their lending.
B. the size of the monetary multiplier would increase.
C. the actual reserves of banks would increase.
D. the Federal funds interest rate would rise.
9. Assume that the legally required reserve is 15 percent and commercial banks choose to hold additional excess reserves equal to 5 percent of any newly acquired deposits. Under these circumstances the monetary multiplier for the commercial banking system is:
10. Assume that Johnson deposits $350 of currency in his account in the XYZ bank. Later the same day Swanson negotiates a loan for $2,000 at the same bank. In what direction and by what amounts has the supply of money changed?
A. Increased by $2,350
B. Increased by $2,000
C. Decreased by $350
D. Decreased by $1,650
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