Question

In: Economics

When the Social Security Administration holds U.S. Treasury Bonds there is a balanced budget. interagency borrowing...

When the Social Security Administration holds U.S. Treasury Bonds

there is a balanced budget.

interagency borrowing has occurred and the government owes itself.

the gross public debt has increased.

an entitlement has occurred.

QUESTION 12

In a fractional reserve banking system

banks are required to keep all deposits on hand so that they can pay their depositors when they desire to withdraw funds.

banks do not keep sufficient reserves on hand to cover 100 percent of their depositors' accounts.

banks are required to keep a fraction of all deposits on hand and send the rest to the Fed.

banks are required to keep a fraction of deposits in bonds.

QUESTION 15

If an asset can be obtained or disposed of without much risk of losing its nominal value, it is said to be

liquid.

wealth.

fiduciary.

valuable.

QUESTION 16

A "banker's bank" is another name for

the Federal Depository Insurance Agency.

a financial intermediary.

a government bank.

a central bank.

QUESTION 17

The opportunity cost of holding excess reserves is equal to

the federal funds rate.

the discount rate.

the federal funds rate minus the discount rate.

none of the above.

QUESTION 18

Under the Fed's current interest- rate- targeting approach to monetary policy, if the demand for federal funds by depository institutions increases today, then, other things being equal

		the market federal funds rate decreases, and the Fed's Trading Desk responds by buying bonds.
		the market federal funds rate increases, and the Fed's Trading Desk responds by selling bonds.
		the market federal funds rate decreases, and the Fed's Trading Desk responds by selling bonds.
		the market federal funds rate increases, and the Fed's Trading Desk responds by buying bonds.

Solutions

Expert Solution

First Question. Interagency borrowing has occurred and the government owes itself.

Explanation: When Social Security Administration holds U.S. Treasury Bonds, this means borrowing from one government agency to another one. So, the government owes to itself.

12. banks do not keep sufficient reserves on hand to cover 100 percent of their depositors' accounts.

Explanation: In a fractional reserve banking system, only a fraction of bank deposits are backed by actual cash on hand with the bank which it makes available for withdrawal to the customers.

15. Liquid

Explanation: A liquid asset can be easily converted into cash.

16. A central bank

Explanation: A central bank is the central monetary authority in an economy and it controls the banking system.

17. none of the above.

Explanation: The opportunity cost here is the federal funds rate minus the interest rate paid on excess reserves

18. the market federal funds rate increases and the Fed's Trading Desk responds by buying bonds.

Explanation: The increase in demand for federal funds would increase the market federal funds rate. So, in order to keep the interest rate at the same level, the Fed needs to increase the money supply. The Fed does this by buying bonds.

Rahul Sunny answered 1 year ago

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