PRINCIPLES OF ECONOMICS 160: TEST 3 |
STUDY GUIDE | QUESTIONS AND ANSWERS
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,1. In which situation do you NOT contribute to the supply of A. You charge a vacation on a credit card
loanable funds? B. You pay off your morgage
C. You open a new savings account
D. You make the final payment on your private student loan.
2. In 2022, the federal government announced that it would A. Left; crowding out
forgive part of the outstanding federal student loan balances B. Right; crowding in
of certain borrowers. If the government forgives student loans C. Left; crowding in
and pays for it by borrowing in the loanable funds market, the D. Right; crowding out
supply curve for loanable funds would shift to the _____,
potentially resulting in _____.
3. You want to invest in the bond market but are worried about A. Treasury bond; a lower interest rate
risk. The least risky type of bond for you to buy is a _____, but B. Treasury bond; a higher interest rate
the tradeoff is ______. C. Small company bond; greater term risk
D. Start up companies bond; default risk
4. Your housemate wakes you up and shares a rumor on A. Deposit insurance
Twitter that Huntington Bank is insolvent. Everyone else rushes B. Maturity transformation
to the bank to get their money, but you go back to sleep, C. Efficient markets
comforted because of: D. Retained earnings
5. You decide to take a couple summer classes to make your A. Funds in a savings account
senior year less stressful. Which of these assets would be the B. Part ownership of your cousin’s privately owned restaurant
easiest to use to pay tuition? C. A Delorean DMC-12, like the one in Back To The Future
D. 10 $10,000 bonds issued by a local construction company
6. Banks spread the risk of lending money across many A. Lending only to risky borrowers
borrowers by: B. Borrowing from the government
C. Lending to a diverse array of borrowers
D. Charging high-interest rates to cover the risk of any loan defaults
7. You go to the bank and deposit $1,000. You are told that you A. $15
will receive 1.5% interest. The bank loans out your money to B. $57.50
borrowers at a rate of 5.75%. A year later, how much money C. $72.50
has the bank made on your money? D. $42.50
, 8. Maturity transformation occurs when banks: A. Provide payment services
B. Assess the creditworthiness of borrowers
C. Use long-term loans to create short-term deposits
D. Use short-term loans to create long-term loans.
9. Suppose that to address very high, double-digit inflation, A. Undermine; higher; upward
the Fed raises the federal funds rate and promises to keep B. Bolster; lower; downward
rates high for an extended period of time, but nobody C. Undermine; lower; upward
believes it. Instead, people believe that the Fed will lower D. Bolster; higher; downward
rates once inflation falls by a few percentage points. This
would likely _____ the Fed's efforts to reduce inflation, since
inflation expectations would be _______ that they otherwise
would be, putting ______ pressure on current inflation.
10. As a bank manager, you find, at the end of the business day, A. Withdrawing money from your Federal Reserve account
that your bank is short of cash to meet withdrawals by B. Issuing publicly-traded bonds
depositors and other short-term obligations. The Fed's interest C. Borrowing from another bank
rate on reserves is 2.5%. Its interest rate on overnight reverse D. Borrowing from the Fed’s discount window.
repurchase agreements is 3%. The federal funds rate is 3.1%.
Also, the Fed's discount rate is 3.3%. You'll acquire the
necessary liquidity by:
11. President Donald Trump repeatedly pressured the Federal A. Economists favor contractionary over expansionary monetary policies
Reserve to lower interest rates, claiming that the Fed's policies B. Economists as a group politically oppose Trump and so tended to oppose Trump’s
were undermining growth and reducing U.S. global favored economic policies.
competitiveness. In August 2019, for example, Trump said on C. Low interest rates lead to low economic growth and high unemployment
Twitter: "The only problem we have is Jay Powell and the Fed. D. Since politicians often advocate policies that favor their short-term political interests,
He's like a golfer who can't putt, has no touch. Big U.S. growth economics prefer that central banks be independent of political influences.
if he does the right thing, BIG CUT — but don't count on him!"
Why would most economists frown on these remarks?
12. Which of these is NOT a check on the power of the Federal A. Audits of the Fed by the Government Accountability Office (GAO)
Reserve? B. Appointment of the Fed chair and Fed Board governors by Congress and the President
C. Central bank independence
D. Twice yearly congressional testimony by the Fed chair
STUDY GUIDE | QUESTIONS AND ANSWERS
| EXAM PREP| EXAM PREP | GRADED A+ |
GUARANTEED SUCCESS
Updated Questions and Answers | 100% Verified Exam Prep
,1. In which situation do you NOT contribute to the supply of A. You charge a vacation on a credit card
loanable funds? B. You pay off your morgage
C. You open a new savings account
D. You make the final payment on your private student loan.
2. In 2022, the federal government announced that it would A. Left; crowding out
forgive part of the outstanding federal student loan balances B. Right; crowding in
of certain borrowers. If the government forgives student loans C. Left; crowding in
and pays for it by borrowing in the loanable funds market, the D. Right; crowding out
supply curve for loanable funds would shift to the _____,
potentially resulting in _____.
3. You want to invest in the bond market but are worried about A. Treasury bond; a lower interest rate
risk. The least risky type of bond for you to buy is a _____, but B. Treasury bond; a higher interest rate
the tradeoff is ______. C. Small company bond; greater term risk
D. Start up companies bond; default risk
4. Your housemate wakes you up and shares a rumor on A. Deposit insurance
Twitter that Huntington Bank is insolvent. Everyone else rushes B. Maturity transformation
to the bank to get their money, but you go back to sleep, C. Efficient markets
comforted because of: D. Retained earnings
5. You decide to take a couple summer classes to make your A. Funds in a savings account
senior year less stressful. Which of these assets would be the B. Part ownership of your cousin’s privately owned restaurant
easiest to use to pay tuition? C. A Delorean DMC-12, like the one in Back To The Future
D. 10 $10,000 bonds issued by a local construction company
6. Banks spread the risk of lending money across many A. Lending only to risky borrowers
borrowers by: B. Borrowing from the government
C. Lending to a diverse array of borrowers
D. Charging high-interest rates to cover the risk of any loan defaults
7. You go to the bank and deposit $1,000. You are told that you A. $15
will receive 1.5% interest. The bank loans out your money to B. $57.50
borrowers at a rate of 5.75%. A year later, how much money C. $72.50
has the bank made on your money? D. $42.50
, 8. Maturity transformation occurs when banks: A. Provide payment services
B. Assess the creditworthiness of borrowers
C. Use long-term loans to create short-term deposits
D. Use short-term loans to create long-term loans.
9. Suppose that to address very high, double-digit inflation, A. Undermine; higher; upward
the Fed raises the federal funds rate and promises to keep B. Bolster; lower; downward
rates high for an extended period of time, but nobody C. Undermine; lower; upward
believes it. Instead, people believe that the Fed will lower D. Bolster; higher; downward
rates once inflation falls by a few percentage points. This
would likely _____ the Fed's efforts to reduce inflation, since
inflation expectations would be _______ that they otherwise
would be, putting ______ pressure on current inflation.
10. As a bank manager, you find, at the end of the business day, A. Withdrawing money from your Federal Reserve account
that your bank is short of cash to meet withdrawals by B. Issuing publicly-traded bonds
depositors and other short-term obligations. The Fed's interest C. Borrowing from another bank
rate on reserves is 2.5%. Its interest rate on overnight reverse D. Borrowing from the Fed’s discount window.
repurchase agreements is 3%. The federal funds rate is 3.1%.
Also, the Fed's discount rate is 3.3%. You'll acquire the
necessary liquidity by:
11. President Donald Trump repeatedly pressured the Federal A. Economists favor contractionary over expansionary monetary policies
Reserve to lower interest rates, claiming that the Fed's policies B. Economists as a group politically oppose Trump and so tended to oppose Trump’s
were undermining growth and reducing U.S. global favored economic policies.
competitiveness. In August 2019, for example, Trump said on C. Low interest rates lead to low economic growth and high unemployment
Twitter: "The only problem we have is Jay Powell and the Fed. D. Since politicians often advocate policies that favor their short-term political interests,
He's like a golfer who can't putt, has no touch. Big U.S. growth economics prefer that central banks be independent of political influences.
if he does the right thing, BIG CUT — but don't count on him!"
Why would most economists frown on these remarks?
12. Which of these is NOT a check on the power of the Federal A. Audits of the Fed by the Government Accountability Office (GAO)
Reserve? B. Appointment of the Fed chair and Fed Board governors by Congress and the President
C. Central bank independence
D. Twice yearly congressional testimony by the Fed chair
