A decrease in the discount rate:
a. increases reserve holdings of the commercial banks.
b. leads to an increase in the interbank rate charged by commercial banks.
c. lowers the cost of borrowing from the Fed.
d. causes an increase in the federal funds rate.
e. decreases the money supply.
Question 2The major drawback of a binding price ceiling is:
a. it causes a surplus.
b. government regulations of this kind are difficult to enforce
c. it causes a shortage.
d. none of the above; there is no drawback.
Question 3Why don't governments avoid budget deficits under all circumstances?
Question 4The rate of interest that the Federal Reserve charges on loans to member banks is the:
a. open market rate.
b. federal funds rate.
c. discount rate.
d. prime interest rate.
e. reserve lending rate.
Question 5To the extent that a governmental price control succeeds in affecting price, it can be expected to lead to a corresponding:
a. reduction in the volume of sales only if the price is forced down.
b. reduction in the volume of sales if the price is forced down and an increase in the volume of sales if the price is forced up.
c. decrease in the volume of sales whether the price is forced up or down.
d. increase in the volume of sales whether the price is forced up or down.
Question 6What is the common method of financing a budget deficit?
Question 7If funds are being loaned from one commercial bank's excess reserves on deposit with the Federal Reserve to another commercial bank's deposit account at the Fed, the transaction is taking place in:
a. the discount market.
b. the currency exchange market.
c. the federal funds market.
d. the open market.
e. the reserves market
Question 8The imposition of a binding price ceiling on a market often results in:
a. an increase in investment in the industry.
b. a surplus.
c. a shortage.
d. a decrease in discrimination on the part of sellers.
Question 9How serious is the national debt to our economic stability?
Question 10Assume that banks lend out all their excess reserves. Currently, the legal reserves that banks must hold equal 11.5 billion. If the Federal Reserve decreases its reserve requirement from 10 percent to 5 percent, then there is potential for the whole banking system to raise the money supply by:
a. 11.5 billion.
b. 230 billion.
c. 115 billion.
d. 57.5 billion.
e. 575 billion.
Question 11Which of the following is not likely to result from an increase in the federal minimum wage?
a. an increase in the quantity of low-skill labor supplied
b. a decrease in the quantity of low-skill labor demanded
c. a decrease in teenage unemployment
d. an increase in teenage unemployment
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