1.The existence of banks: A.has no effect on the trade-off between rate of retur
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1.The existence of banks: A.has no effect on the trade-off between rate of return and liquidity. B.increases the severity of the trade-off between rate of return and liquidity. C.decreases both the rate of return and the liquidity of its customers' assets. D.decreases the severity of the trade-off between rate of return and liquidity. 2.When the Fed purchases short-term government securities from banks, the primary effect on excess reserves is that they: A.decrease. B.increase. C.fluctuate randomly. D.remain constant. 3.When the government guarantees a troubled bank's liabilities: A.the government takes over the bank temporarily and then reprivatizes the bank by selling it to private investors. B.the owners of the bank must pay a fee to receive the guarantee. C.the bank is permanently closed. D.the bank is merged into the Federal Reserve System and becomes a Federal Reserve bank. 4.Whichof the following is TRUE of the Federal Reserve's response to the banking crises of the 1930s and 2008? A.In both crises, the Fed failed to use its power to act as a lender of last resort or to guarantee liabilities of troubled banks. B.In 2008 the Fed acted aggressively as a lender of last resort and to guarantee liabilities of troubled banks, but it did not act in the 1930s. C.In the 1930s the Fed acted aggressively as a lender of last resort and to guarantee liabilities of troubled banks, but it did not act in 2008. D.In both crises, the Fed acted aggressively as a lender of last resort and to guarantee liabilities of troubled banks.Explanation / Answer
1.The existence of banks- B.increases the severity of the trade-off between rate of return and liquidity.
2.When the Fed purchases short-term government securities from banks, the primary effect on excess reserves is that they:-B.increases.
Explanation-The Fed buys government bonds when they want to lower the interest rate. This purchase increases the price of bonds and lowers the interest rate on these bonds. the reduction of interest rate stimulate investment and other forms of spending.
3.When the government guarantees a troubled bank's liabilities:- D.the bank is merged into the Federal Reserve System and becomes a Federal Reserve bank.
Explanation- In that case govt. provides all support to the bank in the form of facilitating a merger, providing credit, or injecting government capital like that .
4.Which of the following is TRUE of the Federal Reserve's response to the banking crises of the 1930s and 2008?-
B.In 2008 the Fed acted aggressively as a lender of last resort and to guarantee liabilities of troubled banks, but it did not act in the 1930s.
Explanation- Financial crisis in 1930 created severe fall in money supply and spending of economy.So economics growth has fallen and recession happened .To avoid such degradation federal reserve was formed in 2013 to balance the economy.
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