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  1. “Crowding out” means that
    a. a government budget deficit lowers interest rates and causes investment spending to rise
    b. an increase in marginal tax rates lowers production
    c. a government budget deficit raises interest rates and causes investment spending to fall
    d. a government budget deficit raises American exports and lowers American imports
    Answers: D D B D D C C A A C
  2. Which of the following IS a function of money?
    a. medium of exchange
    b. store of value
    c. unit of accounting
    d. all of the above
  3. Which of the following is a component of M-1?
    a. savings deposits
    b. credit card
    c. checkable deposits
    d. gold
  4. Which of the following is a NOT component of M-2?
    a. small time deposits
    b. money market mutual funds
    c. stocks
    d. checkable deposits
  5. Which of the following is true about the Federal Reserve System (Fed)?
    a. it is a system of 12 central banks
    b. its Board of Governors is elected by a vote of the people
    c. its main policy-making body is the FDIC
    d. it accepts deposits from the public and makes loans to businesses
    e. all of the above
  6. An IOU of the Federal Reserve Bank of San Francisco to Bank of America is called:
    a. discounts
    b. federal funds
    c. reserves
    d. collateral
  7. Which of the following is the most liquid?
    a. a savings account
    b. a 6 month CD
    c. a home
    d. water
  8. The monetary base is composed of:
    a. gold and silver
    b. currency only
    c. currency and reserves
    d. currency and checkable deposits
  9. If the monetary base is increased by $1,000 and the reserve requirement is 10% (1/10), by how much will the money supply be increased?
    a. $100
    b. $1,000
    c. $5,000
    d. $10,000
  10. If the Federal Reserve wishes to increase the money supply, it should:
    a. raise the reserve requirement
    b. raise the discount rate
    c. buy Treasury securities in the open market
    d. all of the above
  11. An increase in the money supply will cause interest rates to
    a. rise
    b. fall
    c. remain unchanged
    Answers: D C C A C A C D C B