Question

1.As the interest sensitivity of investment spending increases,

Select one:

A. monetary policy has a larger effect on output.

B. the multiplier increases.

C. fiscal policy has a larger effect on output.

D. monetary policy has smaller effect on output.

2.Which of the following is an advantage of currency board system?

Select one:

A. Max seigniorage.

B. Exchange rate stability .

C. Monetary autonomy.

D. Full capacity of LLR.

3.Expansionary monetary policies, all else remaining the same, will

Select one:

A. shift the aggregate demand curve to the left.

B. move the economy up a fixed aggregate demand curve.

C. shift the aggregate demand curve to the right.

D. move the economy down a fixed aggregate demand curve.

4.Which of the following is listed on the liability side of the Federal Reserve balance sheet?

Select one:

A. deposits of depoitory institutions

B. gold

C. loans to depository institutions

D. U.S. government securities

5.Risk-based deposit insurance premiums

Select one:

A. reduce moral hazard incentives.

B. encourage banks to hold more excess reserves

C. reduce the adverse selection problem for regulators.

D. has no effect on banks' behavior.

Answer 1

1) Monetary policy has a larger impact on output

As per Keynesian analysis , greater the interest rate sensitivity of investment Expenditure, the more effective is the monetary policy.

2) stable exchange rate

Biggest advantage of currency board system is that it offers stable exchange rate which can really helpful in the production of international trade.

3) shift the aggregate demand curve to the right.

Expansionary Monetary Policy will increase aggravate demand by increasing Money supply.

4) deposits of depository institutions

The deposits of thousands of depository institutions, US treasury and others hold in the federal reserve banks are a major item listed in the liability side of Fed balance sheet.

5) reduces moral hazard incentives

Risk based deposit insurance was introduced as solution to the moral hazard issue associated with flat rate deposit insurance.risk based deposit insurance helps to mitigate moral hazard by making it more costly.