1) If the Central Bank (the FED) buys bonds from commercial banks, Select one: a
ID: 1120555 • Letter: 1
Question
1)
If the Central Bank (the FED) buys bonds from commercial banks,
Select one:
a. excess reserves in the banking system will be created and commercial banks can make more loans
b. excess reserves in the banking system will decline and commercial banks will be constrained to make fewer loans
c. it would be trying to reduce inflationary pressures on the economy
d. it would be trying to raise interest rates
2)
A cut in taxes and an increase in government spending is an example of
Select one:
a. a contractionary fiscal policy
b. an expansionary monetary policy
c. an expansionary fiscal policy
d. an appropriate policy during demand pull inflation
3)
In recent years the highest quintile income share has _______ and the lowest quintile share has ______.
Select one:
a. increase; increase
b. increase; decreased
c. decreased; decreased
d. decreased; increased
4)
The more excess reserves banks would hold, everything else equal, the bank would be expected to be:
Select one:
a. able to loan more and be more profitable.
b. would be able to loan less and be less profitable.
c. just as profitable if it had less excess reserves.
d. None of the above.
5)
Which of the following is a FALSE statement about real and nominal GDP
Select one:
a. Nominal GDP is a worse measure than real GDP in comparing changes in the production of (real) goods and service year after year.
b. If nominal GDP increases from one year to the next, we know that either prices, real output or both have increased.
c. Increases in prices affect the calculation of nominal GDP.
d. If real GDP increases from one year to the next, we know that production of goods and services has not changed.
Explanation / Answer
1.
A.
Buying the bonds by Fed, means more money is injected to the system as excess reserve. This excess reserve will be used to lend more and earn more by the banks.
2.
C
The action of increase in spending and decrease in tax are the example of expansionary fiscal policy.
3.
B
The income earned by the top quintile has increased, but the income earned by the lowest quintile has come down. It is the reason of income disparity.
4.
A
More excess reserves will compel the banks to loan more and earn more interest income.
5.
D
Real GDP focuses upon the output. Hence, increase in real GDP means output has increased.
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