17. TheFederal funds rateisthe interest rate at which commercial banks borrow fr

Question

17. TheFederal funds rateisthe interest rate at which commercial banks borrow from each other. a) True b) Fal se 14 10 G · 6 ;810 Computers 18. Refer to the above diagram. If society is aurrently producing the combination of bicycles and computers shown by point D, the production of 7 more units of bicydes a) cannot be achieved because resources are fully employed bj will cost 4 unit of computers. c will cost 2 units of computers. d) will cause some resources to become unemployed e Cannot be determined from infomation given 19. Ifthe economy were encountering a severe recession, proper monetary policies would call for: aj selling govemment bonds, reducing the reserve requirement, reducing the discount rate. bj sellinggovernment bonds, rai sing thereserve requirement, raising the discount rate c) buying government bonds, raising the reserve requirement, reducing the discount rate. d) buying government bonds, reducing thereserve requirement, reducing the di scount rate e) buyinggovernment bonds, reducing the reserve requirement, rai sing the discount rate

Explanation / Answer

Answer.)

Q17.) A.) TRUE

The fed funds rate is the interest rate banks charge each other to lend Federal Reserve funds overnight.

Q18.) B.) Will cost 4 units of computers

Note that question asks to shift from production level from Point D to point B. At point D , firm was producing 6 computers and at point B firm would be producing only 2 computers.

Q19.) d.) Buying government bonds, reducing the reserve requirement, reducing the discount rate.

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