Series 3: Chapter 6 Practice Questions

Chapter 6 Practice Questions

1. 1. The federal funds rate refers to:
2. A. The rate banks have to pay when borrowing from the Federal Reserve
3. B. The rate broker-dealers pay when borrowing on behalf of customers
4. C. The rate that the most creditworthy customers pay when borrowing
5. D. The rate banks charge each other for overnight loans over $1 million
6. 2. Which of the following statements is true regarding yield curves?
7. A. Yield curves always slope upwards.
8. B. Yield curves show the relationship between yield and maturity.
9. C. Yield curves are plotted with yield on the x axis.
10. D. Yield curves always slope downward.
11. 3. An inverted yield curve is generally a result of:
12. A. An expectation of a drop in interest rates
13. B. An expectation of a rise in interest rates
14. C. An expectation of stable interest rates
15. D. A dyslexic economist
16. 4. If the economy is in a recession, what can the federal government do to boost the economy?
17. A. Raise taxes
18. B. Decrease spending
19. C. Lower interest rates
20. D. Sell Treasury bonds
21. 5. All of the following are tools that the Federal Reserve uses to implement monetary policy except:
22. A. Open market operations
23. B. Discount window lending
24. C. Changing bank reserve requirements
25. D. Changing the capital gains rate
26. 6. What entity actually carries out open market operations for the Federal Reserve System?
27. A. Federal Open Market Committee
28. B. U.S. Treasury
29. C. The Open Market Trading Desk
30. D. Congress
31. 7. The welfare program is considered an automatic stabilizer because:
32. A. Once you’re on the welfare rolls, you never get off.
33. B. Expenditures increase or decrease counter to the economic cycle.
34. C. It increases purchasing power in the economy.
35. D. Welfare expenditures by the government are fi