Question

10.) Which of the following is an example of an automatic stabilizer?

A. The reduction in the money supply that occurs as banks become less willing to make loans during a recession

B. The reduction in real wages that occurs as the economy goes into a recession

C. The increase in government spending that occurs as the result of new spending bills passed by Congress

D. The rise in tax revenue that occurs as a result of growth in real GDP

21.) According to the "paradox of thrift," an increase in the

A. average propensity to save results in an increase in national output.

B. average propensity to save results in a decrease in unemployment.

C. saving function (upward shift) can result in a decrease in both national output and total saving.

D. consumption function (upward shift) results in a decrease in national income.

24.) Stabilization policies can best be described as policies that

A. attempt to eliminate recession and/or inflation in the economy.

B. use changes in government spending to promote an equitable income distribution.

C. use changes in the money supply to lower income tax rates.

D. eliminate poverty through the adoption of work incentives.

25.) Which of the following would NOT be part of an expansionary fiscal policy?

A. Increased transfer payments to individuals and businesses

B. Decreases in federal taxes on corporations

C. Increased government tax revenues to sustain spending levels without borrowing

D. An expanding federal deficit

30.) Balancing the federal budget over the business cycle requires

A. deficits incurred during economic slumps that are offset by surpluses during economic booms.

B. raising taxes and cutting spending during stagflation.

C. rapid increases in the national debt during national emergencies.

D. matching deficits and surpluses each time Earth orbits the sun.

E. that the national debt grow only as fast as GDP grows.

29.) Under a fractional reserve banking system

A. a bank's total reserves equal its total liabilities.

B. a bank's total deposits (liabilities to the bank) exceed its reserves.

C. a bank's vault cash is only a fraction of its net worth.

D. a bank's liabilities are a small percentage of its loans.

30.) In the fractional reserve banking system

A. only a fraction of bank assets at any one time may be used to create money.

B. only a fraction of a bank's liabilities must be held as reserves to meet withdrawals at any one time.

C. a bank receives only a fraction of the reserve it needs at any given time.

D. All of the choices are correct.

6.) Which statement is true?

A. Open market operations are carried out by the President and Congress.

B. The rate of growth of our money supply is set by law.

C. The most powerful policy weapon of the Federal Reserve is raising and lowering the discount rate.

D. The President's appointment of the chairman of the Federal Reserve must be approved by Congress.

13.) The Federal Reserve System controls the money supply primarily through

A. open market operations.

B. accounting operations.

C. reserve requirement changes.

D. jawboning.

16.) A reduction in the required reserve ratio would cause the interest rates to

A. increase only if the level of investment is low relative to historic levels.

B. decrease.

C. increase.

D. increase only if the level of unemployment is high.

21.) A Fed sale of government securities leads to ____ in bank reserves and ____ in the money supply.

A. an increase; an increase

B. an increase; a decrease

C. a decrease; a decrease

D. a decrease; an increase

22.) When the Fed buys government bonds on the open market,

A. the market rate of interest on government bonds are lowered AND the market rate of interest on corporate bonds are lowered.

B. the market rate of interest on corporate bonds are increased.

C. government yields drop but corporate yields rise.

D. government and corporate yields rise.

23.) If the Fed buys Treasury bills, then

A. the price of Treasury bills will rise.

B. the market rate of interest on Treasury bills will fall.

C. the price of Treasury bills will rise AND the market rate of interest on Treasury bills will fall.

D. neither the price nor the market rate of interest on treasury bills will be affected

Answer 1

Ans 10.) Option D

The automatic stablizers tend to work in tandem with the economy.

When the growth of the economy is high , the tax rates also get high which further leads to the increaase in the tax revenue.Similarly, when the economy is in slump+q, the tax revenue also decreases.