Question

Are federal budget deficits related to trade​ deficits?

A.

​Yes, but only if the quality of U.S. goods and services is deteriorating

B.

No. The budget deficit is entirely a domestic​ matter, while the trade deficit only affects U.S. citizens who travel abroad.

C.

Yes. Higher deficit spending goes up results in more government​ borrowing, and foreign residents who lend funds to the U.S. government have fewer resources to spend U.S. export goods.

D.

Yes. If U.S. consumers buy too many imported​ goods, they do not have funds to​ save, and a budget deficit results.

2)

Suppose you place your savings in a time deposit at the​ bank, and that bank lends some of those funds to a business that desires a loan. This is an example of

A.

direct finance.

B.

credit rationing.

C.

adverse selection.

D.

indirect finance.

3)

Which of the following is NOT a function of the Federal Reserve​ System?

A.

The Fed supplies the economy with fiduciary currency.

B.

The Fed holds reserves of depository institutions.

C.

The Fed acts as fiscal agent for the United States Department of the Treasury.

D.

The Fed determines government spending and taxation policies.

4)

The financial institutions in our banking system are all in the business of transferring funds from savers to investors. This process is known as

A.

the circular flow.

B.

financial intermediation.

C.

money laundering.

D.

direct financing.

5)

Which of the following is a stock​ variable?

A.

wealth

B.

money supply

C.

public debt

D.

all of the above

Answer 1

1) C. Yes. Higher deficit spending goes up results in more government​ borrowing, and foreign residents who lend funds to the U.S. government have fewer resources to spend U.S. export goods.

2) D. indirect finance.

Direct financing means people lend among themselves. But when they lend through banks this is called indirect financing.

3) D. The Fed determines government spending and taxation policies.

Government spending and taxation policies are the fiscal policy of government.

4) B. financial intermediation.

Banks act financial intermediary between saver and borrowers. It accepts deposits from the public and lend them to borrowers.

5) A. Wealth

Stock variable remains fixed at a particular point of time.