1 . Why would Congress initiate new tax legislation?

A. They might be trying to combat high inflation

B. All answers are correct.

C. They might be trying to balance the budget to avoid a deficit

D. They might be trying to combat high unemployment

2 . Financial institutions weigh the choice between earning interest on excess reserves from the Fed with the option to earn interest by loaning excess reserves to customers. If the Federal Reserve changes the interest rate on excess reserves, it changes the incentive financial institutions have to keep their reserves with the Fed, increasing or decreasing the money supply. What is the opportunity cost for banks when they hold onto their excess reserves?

A. The interest they could have earned by lending that money to customers

B. The interest they could have earned if the Fed raised the discount rate

C. None of the above.

D. The taxes they don't have to pay on the extra income they earned

3 . The following characteristics describe which monetary tool?

- Percentage of deposits kept in the vault

- Banks cannot lend cash that is mandated to be saved

- Fed rarely uses this monetary tool

A. Open Market Operations

B. Interest on Required and Excess Reserves

C. Reserve Requirement

D. Discount Rate

4 . Which of the following is NOT a part of the Federal Reserve System?

A. NY Stock Exchange

B. District Bank Presidents

C. Board of Governors

D. FOMC

5 . Which of the following statements isFALSEwith regard to unanticipated inflation?

A. Lenders benefit because interest rates will go down during a period of inflation.

B. Borrowers who borrow at fixed rates will benefit from unanticipated inflation

C. Unanticipated inflation hurts lenders who lend at fixed rates

D. Borrowers pay back their loan with money that has less purchasing power than the money they borrowed.

6 . What actions might the government or the Federal Reserve take if unemployment was at 5%?

A. The Fed might lower interest rates, and the government might lower taxes

B. The Fed and the government will probably take no action as 5% is the acceptable rate of unemployment

C. The Fed might sell bonds, and the government might decrease spending

D. The Fed might raise interest rates, and the government might raise taxes

7 . If the Federal Reserve decides to sell bonds, what effect will it have?

A. It will guarantee higher taxes

B. It will cause the money supply to decrease and inflation to fall

C. It will cause the money supply to increase and employment to rise

D. It will extend stagflation

8 . To stimulate the economy, the Federal Reserve decides that the amount of money in circulation needs to increase. Which of the following actions will they beMOST LIKELYto take?

Group of answer choices

A. Sell treasury bonds

B. Lower the reserve requirement ratio

C. Raise the discount rate

D. Raise the reserve requirement ratio

9 . Which of the following statementsBESTdifferentiates between the term debt and deficit?

A. Debt means to have more money flowing out than coming in and deficit is the accumulation of the debt

B. Debt and deficit are synonymous (i.e. they have exactly the same meaning)

C. Deficit means to have more money flowing out than coming in and debt is the accumulated amount that is owed

D. Deficit is when a nation exports more than it imports.

10 . The following results can occur with what type of Fed action?

-Price Level falls

- Real GDP falls

- Unemployment rises

A. Increase the discount rate

B. Increase the interest rate on reserves

C. Increase the reserve ratio.

D. All of these actions.