ECO 201 Exam (Chapters 25-28) Questions and Answers Fully Solved Latest Version 2025-2026
A bank finds itself short of required reserves and therefore borrows from another commercial bank. The
interest rate on this loan is - Answers the federal funds rate.
A federal budget deficit occurs when - Answers federal government purchases exceed net taxes.
A mortgage-backed security is hundreds of mortgages bundled together which represents a claim on the
monthly payments made on those mortgages. - Answers True
A subprime mortgage is - Answers a mortgage in which the borrower has a poor credit rating.
An important function of commercial banks is to - Answers make loans
Banks are permitted to lend all of their excess reserves. - Answers True
Banks create money when they make loans. - Answers True
During economic contractions, transfer payments such as welfare benefits - Answers automatically
increase, reducing the impact of the contraction on disposable income.
Federal Reserve banks do all of the following except one. Which one is the exception? - Answers Hold
deposits of households and firms
Federal spending (including transfer payments) as a percent of GDP - Answers has increased since 1921.
If a bank's reserves are exactly equal to the required amount of reserves, then it has no excess reserves.
- Answers True
If a customer deposits $1,000 cash into her checking account, the bank's - Answers assets and liabilities
both rise by $1,000.
If the Fed sells government securities to banks, eventually we expect - Answers planned investment
expenditures to decrease
If the required reserve ratio is 10 % and the Fed buys a $5,000 security from a depository institution,
what happens to the money supply, using the simple multiplier? - Answers It increases by $50,000
If the short-run aggregate supply curve has a positive slope, effective fiscal policy to correct for an
expansionary gap will - Answers reduce both the price level and real GDP.
In banking, assets equal liabilities plus net worth. - Answers True
In Keynes' philosophy of governing budgets, - Answers deficits are appropriate during recessions.
In order for something to be used as money, it must be - Answers generally acceptable.
A bank finds itself short of required reserves and therefore borrows from another commercial bank. The
interest rate on this loan is - Answers the federal funds rate.
A federal budget deficit occurs when - Answers federal government purchases exceed net taxes.
A mortgage-backed security is hundreds of mortgages bundled together which represents a claim on the
monthly payments made on those mortgages. - Answers True
A subprime mortgage is - Answers a mortgage in which the borrower has a poor credit rating.
An important function of commercial banks is to - Answers make loans
Banks are permitted to lend all of their excess reserves. - Answers True
Banks create money when they make loans. - Answers True
During economic contractions, transfer payments such as welfare benefits - Answers automatically
increase, reducing the impact of the contraction on disposable income.
Federal Reserve banks do all of the following except one. Which one is the exception? - Answers Hold
deposits of households and firms
Federal spending (including transfer payments) as a percent of GDP - Answers has increased since 1921.
If a bank's reserves are exactly equal to the required amount of reserves, then it has no excess reserves.
- Answers True
If a customer deposits $1,000 cash into her checking account, the bank's - Answers assets and liabilities
both rise by $1,000.
If the Fed sells government securities to banks, eventually we expect - Answers planned investment
expenditures to decrease
If the required reserve ratio is 10 % and the Fed buys a $5,000 security from a depository institution,
what happens to the money supply, using the simple multiplier? - Answers It increases by $50,000
If the short-run aggregate supply curve has a positive slope, effective fiscal policy to correct for an
expansionary gap will - Answers reduce both the price level and real GDP.
In banking, assets equal liabilities plus net worth. - Answers True
In Keynes' philosophy of governing budgets, - Answers deficits are appropriate during recessions.
In order for something to be used as money, it must be - Answers generally acceptable.
