Central banks buy and sell government securities instead of private company stocks and/or bonds, because:
a. The purchase and sale of private company securities does not change a nation's monetary base. Only purchases or sales of government securities change the monetary base.
b. Central banks have established communication systems only with the government.
c. They might be accused of favoring one company over another.
d. All the above.
e. None of the above.
Question 2 - Assume that the government increases spending and finances the expenditures by borrowing in the domestic capital markets. If the nation has low mobility international capital markets and a flexible exchange rate system, what happens to the real GDP and current international transactions in the context of the Three-Sector-Model?
a. Real GDP falls, and current international transactions become more negative (or less positive).
b. Real GDP rises, and current international transactions become more negative (or less positive).
c. Real GDP and current international transactions remain the same.
d. Real GDP rises, and current international transactions remain the same.
e. There is not enough information to determine what happens to these two macroeconomic variables.
Question 3 - If banks demand currency (e.g., Federal Reserve Notes) from the central bank, the effect is to:
a. Increase the nation's monetary base.
b. Decrease the nation's monetary base.
c. Leave the monetary base unchanged.
d. Increase the liabilities of the central bank.
e. None of the above is true.
Question 4 - Assume that the government increases spending and finances the expenditures by borrowing in the domestic capital markets. If the nation has low mobility international capital markets and a flexible exchange rate system, what happens to the real GDP and reserve-related (central bank) transactions in the context of the Three-Sector-Model?
a. Real GDP falls, and reserve-related (central bank) transactions become more negative (or less positive).
b. Real GDP falls and reserve-related (central bank) transactions remain the same.
c. Real GDP and reserve-related (central bank) transactions remain the same.
d. Real GDP rises, and reserve-related (central bank) transactions remain the same.
e. There is not enough information to determine what happens to these two macroeconomic variables.
Question 5 - Federal Reserve Notes:
a. Are assets in the balance sheet of the Federal Reserve.
b. Enter the economy when U.S. financial institutions demand cash from the Federal Reserve.
c. Enter the banking system every time the Federal Reserve sells government securities.
d. All the above are true.
e. None of the above is true.
Question 6 - Assume that the government increases spending and finances the expenditures by borrowing in the domestic capital markets. If the nation has low mobility international capital markets and a flexible exchange rate system, what happens to the real GDP and net nonreserve-related international borrowing/lending in the context of the Three-Sector-Model?
a. Real GDP rises, and net nonreserve-related international borrowing/lending becomes more positive (or less negative).
b. Real GDP rises, and net nonreserve-related international borrowing/lending becomes more negative (or less positive).
c. Real GDP falls, and net nonreserve-related international borrowing/lending becomes more positive (or less negative).
d. Real GDP and net nonreserve-related international borrowing/lending remain the same.
e. There is not enough information to determine what happens to these two macroeconomic variables.
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