Question

10. Open-market purchases of government bonds by the Fed will have the tendency to: A) Increase interest rates, the money supply, and national income. B) Increase interest rates and the money supply, but decrease national income. C) Increase interest rates, but decrease the money supply and national income. D) Decrease interest rates, but increase the money supply and national income. E) Decrease interest rates, the money supply, and national income. 11. Aggregate demand would tend to be shifted up by A) An increase in taxes. B) A decrease in government spending. C) An increase in interest rates. D) open-market purchases by the Fed. E) None of these. 12 Assuming a required 20 percent reserve ratio, a small bank which receives a cash deposit of $1,000 is in a position to: A) Lend out an extra $5,000. D) Lend out an extra $800. B) Lend out an extra $4,000, E) Lend out an extra $200. C) Lend out an extra $1,000. 13. If a deposit of $100 in the banking system can lead to a total expansion in bank deposits of $400, then the required reserve ratio must be: A) 40 percent. B) 400 percent. C) 25 percent. D) 4 percent. E) 2.5 percent. 14. On the basis of the Keynesian model of output determination, which of the following are always true? A) MPS always equals marginal propensity to invest. B) MPS is always greater than MPC. C) MPS + MPC always equals unity. D) The ratio of MPC to MPS must be greater than or equal to unity. E) C and D. 15. If legal required reserve ratios are increased, then there is a tendency for: A) The money supply to decrease and commercial bank loans to increase. B) Both money supply and commercial bank loans to decrease, C) The money supply to increase and commercial bank loans to decrease. D) Both money supply and commercial bank loans to increase. E) The money supply to decrease and commercial bank loans to remain unchanged. 16. The definition of Ml includes: A) B) C) D) E) Coins, currency, and time deposits Coins, currency, and checkable deposits. Coins, currency, and all bank deposits. All currencies, both in banks and in the hands of the public. None of the above.

Answer 1

Q-1 :: ANSWER :: (C)

=> Explanation :

-> If Fed Buy Government Bonds It Rise Prices In The Market So For The Result Of Rise Price it Decrease the nterest Rate In The Market But Buying Bonds By Federal Bank Rise Money Supply In The Economy And So Liquidity Increase In The Market And Also National Income of The Country Increase By Buying Government Bonds By Federal Bank.

Q-2 :: ANSWER :: (D)

=> Explanation :

-> When Federal Bank Buy Bonds From Open Market It Rise Money Supply In The Economu And Increase Liquidity In The Market So It Leads To More Purchases By Consumer So Consumer Demand Increase In The Market Because They Have More Money To Spend On Their Demand So It Increase Aggregate Demand And Shift It To Up.

Q-3 :: ANSWER :: (D)

=> Explanation ::

Reserve Ratio = 20%

And Cash Deposit = $1000

=> So, Require Reserve = $1000* 20/100

= $200

=> New Loans = $1000 - $200

= $800 (New Loans)

=> So, Bank Lend Out Extra $800 and They Have to Maintain Reserve $200.

Q-4 :: ANSWER :: (C)

=> Explanation ::

Money Supply = Deposit * Multiplier

So, Multiplier = $400/$100

= 4

R.R = Reserve Ratio

So, Multiplier = 1/R.R

4 = 1/ R.R

R.R = 1/4

= 0.25

= 25% (0.25 * 100)

-> So, Require Reserve Ratio Is 25%