Question 1 The Federal Open Market Committee (FOMC) consists of a. the president

Question

Question 1 The Federal Open Market Committee (FOMC) consists of a. the presidents of the 12 Federal Reserve Banks b. representatives from banks throughout the U.S c. the Board of Governors and the Secretary of the Treasury d. the Board of Governors and Federal Reserve Bank presidents e. the Comptroller of the Currency and seven Reserve Bank presidents O C Question 2 If the Fed wants to close a contractionary gap, it might 0 a. sell U.S. government bonds to banks b. lower the discount rate C. increase taxes d. decrease taxes e. increase government spending Question 3 What essential factor enables commercial banks to create money? a. required reserves b. state and local government securities O a O c. U.S. government securities d. excess reserves e. net worth Question 4 The world's largest net debtor nation is a. the United States b. China C. Russia d. Mexico e. Brazil

Explanation / Answer

Q1. The Federal open market committee consists of

Ans:- option d (the board of governors and the Federal Reserve bank president)

Q2. If the Fed wants to close a contractionary gap, it might

Ans :- Option b. (lower the discount rate) since when the discount rates are lowered the member banks will take fewer loans which in turn will reduce their lending in the economy.

Q3. What essential factor enables commercial banks to create money?

Ans :- Option d. (excess reserves) since money can be created only with the help of excess reserves.

Q4. The world’s largest net debtor nation is:-

Ans:- Option a (the United States)

Q5. The beginning of the formal budget process is signified by:-

Ans:- Option e (The presidents submission to congress of the Budget of the United States)

Q6. The Federal budget deficit becomes ________ during recession because _________.

Ans:- Option d (larger ; transfer revenue increase and tax revenue declines)

Q7. A lender of last resort is a financial institution that is willing and able to lend to

Ans:- Option a (Federal Reserve system member banks experiencing run on their deposits)

Q8. if fiscal policy is used to close an expansionary gap the

Ans :- Option d ( AD curve shifts rightwards and the price level decreases)

Q9. according to those who favor a passive approach to policy how will the economy

Ans:- Option c ( The SRAS curve will shift to the left) since the passive approach means that the economy is viewed as stable and will recover from shocks as and when they occur.

Q10. In an economy characterized by the aggregate demand curve AD and short run aggregate supply curve SRAS50 in exhibit 11-1, what would be the short run equilibrium level of real GDP and price level?

Ans:- Option d ($300 and 40) since the curves intersect at that level.

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