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If the Fed reduces a commercial bank's reserve requirements the commercial bank can

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There is only one correct answer per question. select the best answer, even when there are other correct answers.
1 If the Fed reduces a commercial bank's reserve requirements the commercial bank can
a lend the extra reserve to the Fed
b Use the extra reserve to create more money
c eliminate its need for overnight lending
d use the extra reserve amount for facility expansion
2 Economics is about
a efficiency
b how to best use money
c resource allocation
d deciding who is affected by taxation
3 "The Fed Chairman is"
a elected for up to a maximum of 3 terms
b is the principal government officer in charge of all economic policy
c accountable to the President
d none of the above
4 If a price ceiling is set on gasoline nationwide,
a the economy would experience unprecedented prosperity
b most oil companies would go bankrupt
c supply and demand for gasoline will be at dynamic equilibrium
d shortage of gasoline would be likely
5 Monetary policy
a involves running a surplus and deficit
b involves changing money supply and taxes
c is managed by the Treasury Department
d none of the above
6 "If a central bank issues large quantities of money, that"
a would be inflationary
b is because some central bank lack independence form political control
c is because they feel that the risk of inflation is less than the risk of economic breakdown
d All of the above
7 Factors of production
a are not the same in different economies
b are only two in free enterprise economies
c include land and labor
d steel mills

8 Relative demand elasticity is high for
a healthcare
b food in general
c hot dogs
d Pepsi and Coke

9 "If real income has risen from $4 trillion to $4.2 trillion and the price level went up
by 10 percent, by how much has the nominal income risen?"
a $440 billion
b $400 billion
c $360 billion
d none of the above
10 "Tax and spend" is
a a classical economics concept in nature
b a Keynesian concept in nature
c primarily an emphasis on free enterprise economy
d a little used area of monetary policy
11 The supply curve represents a relationship between
a the producer and the market
b the suppliers and the firm
c price of a product and its production quantity
d produced goods and the economy as a whole
12 "When oranges are plentiful as a result of a good growing season, what happens to the market price of oranges?"

a It goes up.
b It goes down.
c It widely fluctuates
d None of the above
13 The most important reason for branding is to make a product
a more appealing to the consumer
b relatively more demand elastic
c distinguishable from competing products only
d relatively demand inelastic
14 Keynesian economics favors government spending and is
a a classical economics concept in nature
b essentially not an economic concept
c a part of fiscal policy
d a part of monetary policy
15 In fiscal policy
a the Fed chairman usually recommends policy choices to the government
b the President and the Congress play key roles
c interest rates are not affected by the policy
d deficits are unimportant
16 Economics is mainly about

a efficiency only
b resource allocation
c how to best use money
d deciding who is affected by taxation
17 Economics is
a the science of who gets what and how
b allocation of scarce resources among alternative uses
c authoritative allocation of scarce resources and values
d how totality of a system functions with respect to land, labor and capital

18 Equilibrium price is established when
a Marginal Cost is equal to Average Cost
b Average Revenue is equal to demand
c supply and demand curves intersect
d Marginal Revenue is greater than Marginal Cost
19 Tariffs are
a an import tax
b a restriction on the amount of imports of a foreign good
c Only applied to strategic goods
d none of the above
20 If labor is displaced by technology
a the displaced workers would not be able to find jobs again
b The displaced workers are better off going to a different sector of the economy
c productivity of the firm will be diminished
d re-training would be a reasonable strategy for the workers to find new jobs

21 A Federal Reserve Bank

a is primarily in the business of consumer lending with insured deposits
b is established with the sole purpose of holding bank reserves
c is an agency of the US government
d Is a non-profit bank to make business loans
22 Why do Rolling Stones receive more income from a single concert than a school teacher may receive for a lifetime of work?
a Because Rolling Stones deserve more money
b Because demand for Rolling Stones performance is relatively elastic
c Because demand for Rolling Stones performance is relatively inelastic
d Because the economy does not favor teaching
23 The equilibrium price will rise if the
a demand falls and supply remains constant
b demand falls and supply rises
c demand and supply both rise
d demand rises and supply falls
24 In economics, all resources are scarce
a except in highly productive economies
b except where technology is a major component of production
c except where the labor force is continuously trained and re-trained
d none of the above
25 John Maynard Keynes
a is the father of classical economics
b was an advocate of tax cuts to stimulate the economy
c was an advocate of government spending to boost the economy
d Both b and c

26 Opportunity Cost is a concept
a used to comply with Generally Accepted Accounting Principles
b The cost of the next best alternative
c really the same as Marginal Cost of producing an item
d none of the above
27 Deficit spending is
a can not be undertaken by small governments
b an established monetary policy tool
c can only be implemented by the Fed
d an established fiscal policy tool
28 What annual deficit could a $55 billion economy growing at a real annual rate of 5% have without changing its debt burden?
a $150 million
b $250 million
c $350 million
d none of the above
29 The effect of contractionary monetary policy on the exchange rate through income and price:
a It pushes up the interest rate
b It decreases income and, thus, imports
c It has a tendency to decrease inflation
d All of the above results in increase of the exchange rate
30 The following topics are included in Macroeconomics except
a Impact of taxes on aggregate output
b the effect of trade on economic growth
c how firms set the price and quantity of their products
d military spending
31 Firms prefer quotas to tariffs because
a with quotas they receive more profits
b with tariffs they receive more profits
c neither makes a difference a firm
d none of the above
32 Inflation can reduce debt because
a it reduces the value of the currency, so debt is paid back with cheaper money
b it reduces the value of the currency and actually reduces debt
c both of the above
d none of the above
33 The cost of printing is always lower than the cost of money. That being the case, why doesn't the Fed just print lots of money

a To have value, the supply of money has to be limited
b The Fed does that all the time anyway
c The decision to print money can only come from the Congress
d None of the above
34 Banks prefer to have many depositors rather than one big one. Why?
a Large number of depositors bring stability to the bank
b The bank will be in trouble if a single large depositor decides to close her account.
c Banks are unwilling to make money on the "float."
d a and b

35 A country with comparative advantage in production of wine should
a export its wine
b impose a tariff on wine from other countries
c not specialize in producing wine
d impose a quota on imported wine
36 A strong currency
a is harmful to the economy
b facilitates exports
c facilitates imports
d is trade-neutral
37 "If a government does nothing to stem its currency value decline in international
markets,"

a it is probably aiming at reducing unemployment at home
b it is probably because of an incompetent government that does not understand economics
c it is probably because the government wants to encourage imports
d none of the above
38 Everything else being the same, if inflation goes up in the US,
a the dollar exchange rate against other currencies will go up
b the dollar exchange rate against other currencies will go down
c the dollar exchange rate against other currencies will remain unchanged.
d None of the above
39 Economists advocate free trade because
a trade restrictions lower aggregate output
b trade restrictions reduce international competition
c there could be harmful trade wars
d all of the above
40 "Demand primarily includes "
a want, need and necessity
b the ability to buy and necessity
c the ability and willingness to buy
d none of the above

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Solution Preview

There is only one correct answer per question. select the best answer, even when there are other correct answers.

1 If the Fed reduces a commercial bank's reserve requirements the commercial bank can
a lend the extra reserve to the Fed
b Use the extra reserve to create more money
c eliminate its need for overnight lending
d use the extra reserve amount for facility expansion

b Use the extra reserve to create more money

2 Economics is about
a efficiency
b how to best use money
c resource allocation
d deciding who is affected by taxation

c resource allocation

3 "The Fed Chairman is"
a elected for up to a maximum of 3 terms
b is the principal government officer in charge of all economic policy
c accountable to the President
d none of the above

d none of the above

http://en.wikipedia.org/wiki/Chairman_of_the_Federal_Reserve.

4 If a price ceiling is set on gasoline nationwide,

a the economy would experience unprecedented prosperity
b most oil companies would go bankrupt
c supply and demand for gasoline will be at dynamic equilibrium
d shortage of gasoline would be likely

d shortage of gasoline would be likely

5 Monetary policy
a involves running a surplus and deficit
b involves changing money supply and taxes
c is managed by the Treasury Department
d none of the above

d none of the above

6 "If a central bank issues large quantities of money, that"
a would be inflationary
b is because some central bank lack independence form political control
c is because they feel that the risk of inflation is less than the risk of economic breakdown
d All of the above

a would be inflationary

7 Factors of production
a are not the same in different economies
b are only two in free enterprise economies
c include land and labor
d steel mills

c include land and labor

8 Relative demand elasticity is high for
a healthcare
b food in general
c hot dogs
d Pepsi and Coke

c hot dogs

9 "If real income has risen from $4 trillion to $4.2 trillion and the price level went up by 10 percent, by how much has the nominal income risen?"
a $440 billion
b $400 billion
c $360 billion
d none of the above

As the increase is Increase in real income/(1-price level%)
=200 bn/.9
=$222.2

d none of the above

10 "Tax and spend" is
a a classical economics concept in nature
b a Keynesian concept in nature
c primarily an emphasis on free enterprise economy
d a little used area of monetary policy

b a Keynesian concept in nature

11 The supply curve represents a relationship between
a the producer and the market
b ...

$2.19
Similar Posting

Multiple Choice questions on commercial banks and money supply

1. The fundamental explanation of why commercial banks can create money lies in:
A)fractional reserves.
B)The Federal Reserve or other central banks.
C)Private ownership.
D)The consumption function.
E)Maintaining a marginal propensity to consume less than 1.

2. A reduction in reserve requirements of member banks tends to counter a recession by:
A)Raising interest rates.
B)Reducing excess reserves.
C)Increasing excess reserves.
D)Decreasing outstanding loans.
E)Decreasing aggregate demand.

3. By purchasing government securities in the open market, the Federal Reserve authorities hope ultimately to accomplish:
A)An increase in bank reserves larger than the original purchases by the appropriate multiple.
B)An increase in bank reserves by the amount of the original purchase.
C)A decrease in bank reserves.
D)An equal increase in bank reserves and Federal Reserve notes.
E)An increase in Federal Reserve notes larger than the original purchases by
Appropriate multiple.

4. If the Fed has correctly interpreted economic conditions, a contraction in the money-supply could:
A)reduce aggregate demand.
B)increase unemployment.
C)reduce output.
D)lower inflation.
E)any one of the above, depending upon circumstance.

5. Raising the discount rate, if effective, tends to:
A)expand the money supply and lower interest rates.
B)expand the money supply and raise interest rates.
C)contract the money supply and raise interest rates.
D)contract the money supply and lower interest rates.
E)Do none of the above.

6.During a period of high inflation:
A)Borrowers are better off because they can pay off their loans with currency that is worth less.
B)Borrowers are worse off because they have to pay off their loans with currency that is worth more.
C)Lenders are worse off because they cannot find anyone who wants a loan.
D)Lenders are worse off because they are repaid with currency that is worth more.
E)None of the above.

7. If banks hold a 20 percent reserve ratio, an initial increase in deposits of $20 will lead to an eventual:
A)Increase in the money supply of $400.
B)Increase in the money supply of $80.
C)Increase in the money supply of $100.
D)Increase in loans of $100.
E)Increase in loans of $400.

8. The real rate of interest:
A)Equals the nominal rate plus the rate of inflation.
B)Equals the rate of inflation minus the nominal rate.
C)Equals the nominal rate minus the rate of inflation.
D)Tends to increase when inflation rises.
E)None of the above.

9. In recent years, probably the most important mechanism of the Federal Reserve System's monetary control has been:
A)The discount rate.
B)Legal reserve requirements.
C)Open-market operations involving government securities.
D)Moral suasion.
E)Consumer credit and margin requirements.

10. A discretionary fiscal action involves

A)Changes in tax revenues that result from changes to tax rates
B)Payment of unemployment insurance
C)A Congressionally mandated change in the level of government spending
D)Payment of social security benefits to retirees
E)All of the above

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