28. Which of the following does not represent one of the goals of the Federal Re

Question

28. Which of the following does not represent one of the goals of the Federal Reserve? a. Balanced budget b. low inflation c. high employment d. economic growth 29. A tighter monetary policy is intended to Slow the economy down in order to keep inflation in check b. a. Speed the economy up in order to have an expansionary effect on the economy c. Slow d. the economy down in order to have an expansionary effect on the economy Speed the economy up in order to keep inflation in check 30. If the government increased spending and borrowed the money to do it, some economists argue that aggregate demand will not increase because of the a. Crowding-out effect b. Interest rate effect c. Wealth effect d. Income effect 31. Which of the following monetary measures would best complement fiscal measures designed to stimulate aggregate demand during a period of high unemployment? a. An increase in reserve requirements b. The purchase of bonds by the Federal Reserve c. An increase in the Fed's discount rate d. An increase in margin requirements necessary to buy stock 32. A balanced budget is present whern The economy is at full employment a. b. The actual level of aggregate spending equals the planned level of spending Public sector spending equals private sector spending d. c. Government revenues equal expenditures 33. The multiplier principle is important because it a. Was central to economic theory before the Great Depression b. Implies that investment will help stabilize the economy c. Shows why small shifts in investment and other components of aggregate spending have a rful influence on GDP and national income d. ilustrates why a small change in income causes a large change in saving 34. The legal requirement that commercial banks hold reserves equal to some fraction of their deposits a. Limits the ability of banks to expand the money supply by extending additional loans b. Prevents the Fed from controlling the money supply since commercial banks can always offset the actions of the Fed Prevents runs on banks by depositors who fear that banks have insufficient assets to meet the claims of their depositors Limits the ability of the Treasury to expand the national debt c. d· 35. Excess reserves of banks equal a. b. c. d. Actual reserves minus required reserves Actual reserves minus demand deposits Assets minus liabilities of the banks Required reserves minus demand deposits

Explanation / Answer

28.

Since the balanced budget is a goal of the government and not the Federal reserve and Federal cannot influence the balanced budget.

Hence balance budget is the goal of the government.

Hence option a is the correct answer.

29.

The purpose of the higher monetary policy is to reduce the inflation and reduce the AD.

The central bank decreases the money supply, as a result the interest rate increases and therefore investment and therefore aggregate demand reduces, therefore price level and real GDP falls.

It means this policy slow the economic growth for keeping inflation in check.

Hence option a is the correct answer.

30.

If the government has increased the spending and borrowed money for it, then people expect that higher tax rate in the future, therefore they will not increase their current spending. Hence it will not increase AD. This is known as the crowding out effect.

Hence option a is the correct answer.

31.

If the Fed purchases, the bonds, the money supply will increase and rate of interest will decrease, it leads to more investment and therefore aggregate demand will increase and it will stimulate aggregate demand in the period of high unemployment. Due to higher aggregate demand unemployment decrease.

Hence option b is the correct answer.

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