MCQ On Macroeconomics: Trivia Test! Quiz
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Questions and Answers
- 1.
As the part of a person's wealth that can be readily used for transactions of buying items.
- A.
Currency
- B.
Money supply
- C.
Medium of exchange
- D.
Checking deposits
- E.
Money
Correct Answer
E. MoneyExplanation
Money is the correct answer because it refers to the part of a person's wealth that can be readily used for transactions of buying items. Money serves as a medium of exchange, allowing individuals to trade goods and services. It includes physical currency, such as coins and banknotes, as well as checking deposits that can be easily accessed and used for purchases. Money supply refers to the total amount of money available in an economy, but it does not specifically address its usability for transactions.Rate this question:
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- 2.
The level of income or real GDP at which the 45-degree line and the expenditure line cross; also called the equilibrium income.
- A.
Marginal propensity to consume
- B.
Expenditure line
- C.
Spending balance
Correct Answer
C. Spending balanceExplanation
The term "spending balance" refers to the level of income or real GDP at which the 45-degree line (representing income) and the expenditure line (representing spending) intersect. At this point, the amount of income generated matches the amount of spending in the economy, resulting in an equilibrium. It is also known as the equilibrium income, as it represents a state of balance between income and spending. The concept of spending balance is important in macroeconomics as it helps determine the overall level of economic activity in an economy.Rate this question:
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- 3.
Something of value owned by a person or firm.
- A.
Asset
- B.
Productivity
- C.
Liability
- D.
Unit of account
- E.
Open market operation
Correct Answer
A. AssetExplanation
An asset refers to something of value that is owned by a person or firm. It can be any tangible or intangible item that has economic value and can be used to generate future benefits. Assets can include physical properties, financial investments, intellectual property, or even goodwill. They are recorded on a balance sheet and are crucial for evaluating the financial health and performance of an individual or organization.Rate this question:
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- 4.
As labor grows you'll be able to produce more, but at a lower rate.
- A.
Inflation adjustment line
- B.
Productivity
- C.
Demand shock
- D.
Velocity
- E.
Diminishing returns
Correct Answer
E. Diminishing returnsExplanation
Diminishing returns refers to the concept that as labor grows, the increase in productivity becomes less and less significant. Initially, adding more labor may result in a substantial increase in production, but eventually, the additional labor leads to diminishing returns. This means that the rate of increase in output decreases as more labor is added. Therefore, while labor growth still allows for an increase in production, it is at a lower rate compared to earlier stages.Rate this question:
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- 5.
The growth rate of productivity = 1/3 (growth rate of capital per hr of work) + (growth rate of technology) OR Growth rate of technology = growth rate of productivity - 1/3 (growth rate of capital per hour of work)
- A.
Target inflation rate
- B.
Aggregated demand
- C.
Growth accounting formula
- D.
Federal funds rate
- E.
Reserves
Correct Answer
C. Growth accounting formulaExplanation
The growth accounting formula is a mathematical equation used to calculate the sources of economic growth. It states that the growth rate of productivity is equal to one-third of the growth rate of capital per hour of work plus the growth rate of technology. This formula helps economists understand the factors contributing to economic growth and allows for analysis and comparison of different economies. It is an important tool in understanding the drivers of economic development and can be used to inform policy decisions.Rate this question:
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- 6.
The discovery of new knowledge or a new principle.
- A.
Innovation
- B.
Invention
- C.
Diffusion
- D.
Disinflation
- E.
Re inflation
Correct Answer
B. InventionExplanation
Invention refers to the creation or development of a new product, process, or idea that is not previously known or existing. It involves the discovery of new knowledge or a new principle, leading to the introduction of something new. This aligns with the given statement about the discovery of new knowledge or a new principle, making invention the correct answer. Innovation, on the other hand, refers to the implementation or improvement of existing ideas or practices. Diffusion refers to the spread or dissemination of new ideas or innovations. Disinflation and reflation are terms related to changes in the inflation rate.Rate this question:
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- 7.
The central bank's goal for the average rate of inflation over the long run.
- A.
Federal reserves system
- B.
Quantity equation of money
- C.
Real business cycle theory
- D.
Target inflation rate
- E.
Marginal propensity to consume
Correct Answer
D. Target inflation rateExplanation
The correct answer is "target inflation rate." The explanation for this answer is that the central bank sets a target inflation rate as its goal for the average rate of inflation over the long run. This target rate helps guide the central bank's monetary policy decisions and influences interest rates, money supply, and other factors that can affect inflation. By setting a target inflation rate, the central bank aims to maintain price stability and promote sustainable economic growth.Rate this question:
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- 8.
The buying or selling of bonds by the central bank.
- A.
Abc
- B.
Federal open market committee
- C.
Federal reserves system
- D.
Federal funds rate
- E.
Open market operation
Correct Answer
E. Open market operationExplanation
Open market operation refers to the buying or selling of bonds by the central bank. This is a monetary policy tool used by the central bank to control the money supply in the economy. When the central bank buys bonds, it injects money into the economy, increasing the money supply. Conversely, when it sells bonds, it reduces the money supply. Open market operations are used to influence interest rates and stabilize the economy.Rate this question:
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- 9.
Something of value that a person/firm owes to someone else.
- A.
Assets
- B.
Liability
- C.
Reserves
Correct Answer
B. LiabilityExplanation
A liability refers to something of value that a person or firm owes to someone else. It represents an obligation or a debt that needs to be fulfilled in the future. Liabilities can include loans, accounts payable, or any other financial obligations. They are recorded on the balance sheet and are important for assessing the financial health and obligations of an individual or a company.Rate this question:
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- 10.
Something that will allow purchasing power to be carried from one person to the next
- A.
Productivity
- B.
Unit of account
- C.
Bank
- D.
Store of value
Correct Answer
D. Store of valueExplanation
A store of value refers to something that retains its worth over time, allowing individuals to preserve their purchasing power. It is a reliable way to hold wealth and transfer it from one person to another. Unlike other options listed, such as productivity, unit of account, or bank, a store of value specifically focuses on the ability to maintain and transfer value. This makes it the most suitable choice for an explanation of something that allows purchasing power to be carried from one person to the next.Rate this question:
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- 11.
The equation relating the price level and GDP to the quantity of money and the velocity of money. (Quantity of money) (velocity) = (price level) (real GDP)
- A.
Spending balance
- B.
Quantity equation of money
- C.
Monetary policy rule
- D.
Medium of exchange
Correct Answer
B. Quantity equation of moneyExplanation
The equation given in the question is known as the quantity equation of money. It shows the relationship between the quantity of money in an economy, the velocity of money (how quickly money is spent), the price level, and the real GDP. This equation is used to understand the factors that influence inflation and economic growth. By manipulating the quantity of money or the velocity of money, monetary policymakers can influence the price level and real GDP, making it a relevant concept in monetary policy.Rate this question:
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- 12.
The fraction of a banks deposits that is required to hold at the federal reserves
- A.
Store of value
- B.
Checking deposits
- C.
Required reserve ratio
- D.
Quantity theory of money
- E.
Inflation
Correct Answer
C. Required reserve ratioExplanation
The required reserve ratio refers to the fraction of a bank's deposits that it is obligated to hold as reserves at the Federal Reserve. This ratio is set by the central bank and serves as a regulatory tool to control the money supply in the economy. By requiring banks to hold a certain percentage of their deposits as reserves, the central bank can influence the amount of money that banks can lend out, thus affecting the overall money supply and potentially impacting inflation levels. Therefore, the required reserve ratio is directly related to the quantity theory of money and plays a crucial role in monetary policy.Rate this question:
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- 13.
The interest rate on overnight loans between banks.
- A.
Federal funds rate
- B.
Required reserve ratio
- C.
Reserves
- D.
Open market operation
- E.
Consumption function
Correct Answer
A. Federal funds rateExplanation
The federal funds rate refers to the interest rate at which banks lend and borrow funds from each other on an overnight basis. It is set by the Federal Reserve and serves as a benchmark for other interest rates in the economy. By adjusting the federal funds rate, the central bank can influence borrowing costs, liquidity, and overall economic activity. This rate is crucial for banks to meet their reserve requirements and manage their short-term liquidity needs.Rate this question:
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- 14.
Coins & paper money.
- A.
Money
- B.
Store of value
- C.
Assets
- D.
Bank
- E.
Currency
Correct Answer
E. CurrencyExplanation
Currency refers to the type of money that is commonly used in a specific country or region. It is a form of legal tender that is issued by the government and widely accepted as a medium of exchange for goods and services. Currency holds value and can be used to store wealth. It is typically in the form of coins and paper money, which are issued by the central bank of a country. Currency is an essential component of the financial system and plays a crucial role in facilitating economic transactions.Rate this question:
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- 15.
Output per unit of labor (Y/L)
- A.
Diminishing returns
- B.
Technological change
- C.
Growth accounting formula
- D.
Productivity
Correct Answer
D. ProductivityExplanation
Productivity refers to the efficiency of production and is measured by the output per unit of labor (Y/L). It indicates how effectively resources are being used to produce goods or services. An increase in productivity means that more output is being generated with the same amount of labor, resulting in higher efficiency and economic growth. Therefore, productivity is the correct answer in this context.Rate this question:
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- 16.
Innovation that creates something brand new
- A.
Invention
- B.
Innovation
- C.
Diffusion
- D.
Disinflation
- E.
Demand shock
Correct Answer
C. DiffusionExplanation
Diffusion refers to the process of spreading or disseminating something, such as ideas, innovations, or technologies, from one group or area to another. It involves the adoption and acceptance of the new idea or innovation by a larger population or market. This can lead to the creation of something brand new as it allows for the transfer and combination of different ideas and knowledge. Therefore, diffusion can be seen as an innovative process that creates something new by spreading and integrating ideas or innovations.Rate this question:
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- 17.
"practice makes perfect"
- A.
Money supply
- B.
Open market operation
- C.
Expenditure line
- D.
Learning by doing
Correct Answer
D. Learning by doingExplanation
The phrase "practice makes perfect" implies that the more one practices or engages in a certain activity, the better they become at it. This aligns with the concept of "learning by doing," which suggests that hands-on experience and active participation in a task or skill leads to better understanding and mastery. Therefore, the correct answer is "learning by doing."Rate this question:
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- 18.
New knowledge is brought into application with a new product
- A.
Invention
- B.
Innovation
- C.
Diffusion
Correct Answer
A. InventionExplanation
Invention refers to the creation of a new product, process, or idea that did not previously exist. It involves bringing new knowledge into application and creating something entirely new. In this context, the statement suggests that new knowledge is being applied to create a new product, which aligns with the concept of invention.Rate this question:
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- 19.
A line showing a negative relationship between inflation and the aggregated quantity of goods/services
- A.
Expenditure line
- B.
Aggregated demand (AD) curve
- C.
Inflation adjustment (IA) line
- D.
Medium of exchange
Correct Answer
B. Aggregated demand (AD) curveExplanation
The correct answer is the aggregated demand (AD) curve because it shows the relationship between inflation and the aggregated quantity of goods/services. As inflation increases, the aggregated demand for goods and services decreases, indicating a negative relationship between the two variables. The AD curve is a graphical representation of this relationship, showing the level of aggregate demand at different price levels.Rate this question:
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- 20.
A flat line showing the level of inflation in the economy at a given point in time. It shifts up when real GDP is greater than potential
- A.
Real business cycle theory
- B.
Federal funds rate
- C.
Aggregated demand (AD) curve
- D.
Expenditure line
- E.
Inflation adjustment (IA) line
Correct Answer
E. Inflation adjustment (IA) lineExplanation
The inflation adjustment (IA) line represents the level of inflation in the economy at a specific point in time. When real GDP is greater than potential, it indicates that the economy is operating above its full capacity, leading to upward pressure on prices and therefore inflation. The IA line shifts up in this scenario to reflect the increase in inflation.Rate this question:
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- 21.
A component of the Keynesian Theory, ____ represents the proportion of an aggregate raise in pay that's spent on the consumption of goods/services
- A.
Marginal propensity to consume (MPC)
- B.
Aggregated demand curve (AD)
- C.
Inflation adjustment line (IA)
- D.
Quantity equation of money
Correct Answer
A. Marginal propensity to consume (MPC)Explanation
The correct answer is marginal propensity to consume (MPC). In Keynesian Theory, MPC refers to the proportion of an aggregate raise in pay that is spent on the consumption of goods and services. It reflects the tendency of individuals to spend a portion of their additional income rather than saving it. This concept is important in understanding the relationship between income and consumption in an economy.Rate this question:
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- 22.
A slowing in the rate of price inflation. ____ is used to describe instances when the inflation rate has reduced marginally over the short term.
- A.
Price shock
- B.
Demand shock
- C.
Disinflation
- D.
Reinflation
- E.
Inflation
Correct Answer
C. DisinflationExplanation
Disinflation refers to a slowing in the rate of price inflation, where the inflation rate has reduced marginally over the short term. It is different from deflation, as disinflation still indicates a positive inflation rate, just at a slower pace. This term is used to describe a period when the rate of price increases is decreasing, but prices are still rising, albeit at a slower rate.Rate this question:
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- 23.
A condition of slow economic growth and relatively high unemployment. Occurs when the economy isn't growing, but prices are
- A.
Disinflation
- B.
Reinflation
- C.
Inflation
- D.
Invention
- E.
Stagflation
Correct Answer
E. StagflationExplanation
Stagflation refers to a condition of slow economic growth and relatively high unemployment, combined with inflation. It occurs when the economy is not growing, but prices are still rising. This situation is considered challenging because typically, inflation is associated with economic growth and low unemployment. However, in stagflation, the economy stagnates while prices continue to increase, leading to a difficult economic environment for businesses and individuals.Rate this question:
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- 24.
A general decline in prices, often caused by a reduction in the supply of money or credit. Deflation in government, personal or investment spending. Can increase unemployment => can then lead to economic depression.
- A.
Opperation
- B.
Disinflation
- C.
Stagflation
- D.
Deflation
- E.
Innovation
Correct Answer
D. DeflationExplanation
Deflation refers to a general decrease in prices, typically resulting from a decrease in the supply of money or credit. When there is deflation, government, personal, or investment spending tends to decrease, which can lead to an increase in unemployment. This increase in unemployment can further result in an economic depression. Therefore, the given answer "deflation" accurately describes the situation described in the explanation.Rate this question:
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- 25.
An item that people are willing to accept as payment for what they are selling because they in turn can use it to pay for something else that they want
- A.
Currency
- B.
Medium of exchange
- C.
Money
- D.
Money supply
Correct Answer
B. Medium of exchangeExplanation
The term "medium of exchange" refers to an item that is widely accepted as payment for goods and services. It is a form of currency that people are willing to accept because they can use it to purchase other things they desire. This term encompasses the concept of money, as it represents a means of facilitating transactions and trade between individuals and businesses.Rate this question:
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- 26.
A theory of macro that stresses the shift in potential GDP are a primary cause of fluctuations in real GDP, the shifts in potential GDP are usually assumed to be caused by changes in technology
- A.
Real business cycle theory
- B.
Technological change
- C.
Growth accounting formula
- D.
Money supply
Correct Answer
A. Real business cycle theoryExplanation
Real business cycle theory is a theory of macroeconomics that emphasizes the role of fluctuations in real GDP as a result of shifts in potential GDP. According to this theory, changes in technology are considered to be the main driver of these shifts in potential GDP. This means that advancements or changes in technology can lead to changes in the productive capacity of an economy, which in turn affects the level of real GDP. Therefore, the correct answer is real business cycle theory.Rate this question:
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- 27.
A relation between the sum of 4 components of spending and aggregated income (C + I + X + G)
- A.
Consumption function
- B.
Inflation adjustment (IA) line
- C.
Expenditure line
- D.
Liabilities
- E.
Assets
Correct Answer
C. Expenditure lineExplanation
The term "expenditure line" refers to the relationship between the sum of 4 components of spending (C + I + X + G) and aggregated income. It represents the total amount of spending that occurs at different levels of income. As income increases, the expenditure line shows how spending also increases. This concept is important in economics as it helps to understand the relationship between income and spending, and how changes in income can impact overall spending patterns.Rate this question:
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- 28.
A surprise event that temporarily increases or decreases demand for goods/services
- A.
Stagflation
- B.
Disinflation
- C.
Reinflation
- D.
Price shock
- E.
Demand shock
Correct Answer
E. Demand shockExplanation
A demand shock refers to a sudden and unexpected event that causes a significant increase or decrease in the demand for goods or services. This event can be caused by various factors such as changes in consumer preferences, economic policies, natural disasters, or technological advancements. A demand shock can have a temporary impact on the overall demand for goods or services, leading to fluctuations in the market and potentially affecting prices and production levels.Rate this question:
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- 29.
A firm that channels funds from savers to investors by accepting deposits and making loans
- A.
Money supply
- B.
Money
- C.
Medium of exchange
- D.
Bank
- E.
Loans
Correct Answer
D. BankExplanation
A bank is a financial institution that acts as an intermediary between savers and investors. It accepts deposits from savers and uses those funds to provide loans to borrowers. By doing so, banks facilitate the flow of funds in the economy and play a crucial role in channeling funds from those who have excess savings to those who need capital for investment. Therefore, a bank is the correct answer to the given question.Rate this question:
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- 30.
A standard unit which units can be quoted and values of goods can be compared
- A.
Unite of account
- B.
Medium of exchange
- C.
Checking deposits
- D.
Liability
Correct Answer
A. Unite of accountExplanation
The correct answer is "unit of account." A unit of account refers to a standard measurement that allows for the comparison of values and quoting of prices for goods and services. It provides a common language for expressing the worth or cost of different items, facilitating economic transactions and comparisons.Rate this question:
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- 31.
Occurs when new ideas are developed into new products that increase production (also known as technological progress)
- A.
Innovation
- B.
Invention
- C.
Diffusion
- D.
Learning by doing
- E.
Growth accounting formula
Correct Answer
B. InventionExplanation
Invention refers to the process of creating new ideas and developing them into new products or technologies. This leads to technological progress and increases production. Innovation, on the other hand, refers to the implementation of these new ideas or inventions into the market. While both invention and innovation are closely related, the correct answer in this case is invention as it specifically mentions the development of new products that increase production.Rate this question:
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- 32.
A line showing that expenditures equal aggregated income.
- A.
Target inflation rate
- B.
45 degree line
- C.
Aggregated demand (AD) curve
- D.
Inflation adjustment (IA) line
- E.
Technological change
Correct Answer
B. 45 degree lineExplanation
The 45 degree line represents a situation where expenditures equal aggregated income. This means that the total amount of money spent in an economy is equal to the total income generated. This line is often used in macroeconomics to illustrate the equilibrium level of output in an economy. When the 45 degree line intersects with the aggregated demand (AD) curve, it represents the point where the economy is in equilibrium, with no excess demand or supply.Rate this question:
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- 33.
The measure of how frequently money is turned over in the economy.
- A.
Money supply
- B.
Velocity
- C.
Reserves
- D.
Bank
- E.
Frequency
Correct Answer
B. VelocityExplanation
Velocity refers to the measure of how frequently money is turned over in the economy. It represents the speed at which money is exchanged for goods and services. A higher velocity indicates that money is being spent more quickly, leading to a higher level of economic activity. On the other hand, a lower velocity suggests that money is being held onto for longer periods, which can result in reduced economic growth. Therefore, velocity is a crucial factor in understanding the dynamics of an economy.Rate this question:
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- 34.
The central bank of the US, which oversees the creations of money in the US.
- A.
Growth accounting formula
- B.
Required reserve ration
- C.
Federal Open Market Committee
- D.
Federal Reserves System (The Fed)
- E.
Spending balance
Correct Answer
D. Federal Reserves System (The Fed)Explanation
The correct answer is the Federal Reserves System (The Fed). The explanation for this is that the Federal Reserves System is the central bank of the US and is responsible for overseeing the creation of money in the country. It plays a crucial role in regulating the US economy by implementing monetary policies, controlling interest rates, and managing the nation's banking system. The Fed also acts as a lender of last resort to banks, ensuring the stability and smooth functioning of the financial system.Rate this question:
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- 35.
The positive relationship between consumption and income.
- A.
Aggregated demand (AD) curve
- B.
Consumption function
- C.
Keynesian Theory
- D.
Monetary Policy Ruke
Correct Answer
B. Consumption functionExplanation
The consumption function is a concept in Keynesian economics that explains the relationship between consumption and income. It suggests that as income increases, individuals tend to consume more. This positive relationship between consumption and income is reflected in the aggregated demand (AD) curve, which shows the total demand for goods and services in an economy. The consumption function is an important component of Keynesian theory, which emphasizes the role of aggregate demand in determining economic output and employment. It is not directly related to the monetary policy rule, which focuses on the control of interest rates and money supply by central banks.Rate this question:
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- 36.
A description of how much the interest rate or other instruments of monetary policy respond to inflation or other measures of the state of the economy.
- A.
Federal Reserves
- B.
Federal Funds Rate
- C.
Required reserves
Explanation
The correct answer is Federal Reserves. The Federal Reserves is responsible for implementing monetary policy in the United States. This includes setting the federal funds rate, which is the interest rate at which banks lend to each other overnight. The Federal Reserves also sets the required reserve ratio, which determines the amount of reserves that banks are required to hold. These tools are used to influence the state of the economy, including inflation. The extent to which the interest rate and other instruments of monetary policy respond to inflation or other economic measures is determined by the Federal Reserves.Rate this question:
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- 37.
Deposits that commercial banks hold at the federal reserve.
- A.
Assets
- B.
Liability
- C.
Reserves
- D.
Growth accounting formula
Correct Answer
C. ReservesExplanation
Reserves refer to the deposits that commercial banks hold at the Federal Reserve. These reserves serve as a form of security for banks and enable them to meet their obligations and maintain liquidity. By holding reserves, banks can ensure that they have enough funds to cover withdrawals and fulfill their role in the financial system. Therefore, reserves are an essential component of a bank's balance sheet and are considered as assets for the banks.Rate this question:
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- 38.
The sum of currency + deposits at a bank.
- A.
Assets
- B.
Llollipops
- C.
Currency
- D.
Money supply
- E.
Deposits
Correct Answer
D. Money supplyExplanation
The term "money supply" refers to the total amount of money in circulation within an economy. It includes both currency, which is the physical cash held by individuals and businesses, and deposits, which are funds held in bank accounts. Therefore, the sum of currency and deposits at a bank represents the money supply as it encompasses both forms of money. The other options mentioned, such as assets and lollipops, are not relevant in this context and do not contribute to the understanding of the money supply.Rate this question:
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