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Which of the following bank assets is the most liquid? A) consumer loans C) state and local government securities D) U.S. government securities 4. B)

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Which of the following bank assets is the most liquid? A) consumer loans C) state and local government securities D) U.S. government securities 4. B) reserves While the discount rate is "established" by the regional Federal Reserve Barks, in truth, the rate is determined by A) Congress C) the Senate. 5. B) the president of the United States D) the Board of Governors If the Fed injects reserves into the banking system and they are held as excess reserves, then the monetary base and the money supply A) remains unchanged, remains unchanged B) remains unchanged, increases C) increases; increases 6. D) increases, remains unchanged 7. Suppose on any given day the prevailing equilibrium federal funds rate is above the Federal Reserve's federal funds target rate. If the Federal Reserve wishes for the federal funds rate to be at their target level, then the appropriate action for the Federal Reserve to take is a-- -open market-?? everything else held constant. A) defensive; sale C) dynamic; sale B) defensive; purchase D) dynamic; purchase Monetary policy is considered time-inconsistent because A) of the lag times associated with the implementation of monetary policy and its 8. effect on the economy B) policymakers are tempted to pursue discretionary policy that is more contractionary in the short run. C) policymakers are tempted to pursue discretionary policy that is more expansionary in the short run. D) of the lag times associated with the recognition of a potential economic problem and the implementation of monetary policy If initially the money supply is $1 trillion, velocity is S, the price level is 1, and real GDP is $5 trillion, an increase in the money supply to $2 trillion A) increases real GDP to $10 tillion B) causes velocity to fall to 2.5. C) increases the price level to 2 D) increases the price level to 2 and velocity to 10. 9. 10. According to Tobin's q theory, when qisfirms will not purchase new relative to the investment goods because the market value of firms is cost of capital. A) low; low C) high; low B) low; high D) high; high Page 2 of 4

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