The determination of gross domestic product (GDP) by the expenditure approach would include:
Answer(s): A
Choice "a" is correct. The expenditure approach to computing GDP includes:ConsumptionNet exportsGovernment expendituresCapital investmentChoices "b", "c", and "d" are incorrect, per the above.
Under the expenditure approach, GDP can be calculated as the sum of:
Answer(s): C
Choice "c" is correct. Under the expenditure approach, GDP is calculated as the sum of: consumption expenditures + investment expenditures + government purchases + net exports.Choice "a" is incorrect. See definition above.Choice "b" is incorrect. See definition above.Choice "d" is incorrect. See definition above.
The discount rate set by the Federal Reserve is the:
Choice "c" is correct. The discount rate refers to the rate established by the Federal Reserve for shortterm (often overnight) loans the Fed makes to member banks. Choice "a" is incorrect. The discount rate is the rate the Federal Reserve charges.Choice "b" is incorrect per above Explanation.Choice "d" is incorrect. This would be the bank's reserve ratio - not the discount rate.
All of the following actions are valid tools that the Federal Reserve Bank uses to control the supply of money, except:
Answer(s): D
Choice "d" is correct. The treasury prints money. The Fed must increase the money supply through:1. Federal open market committee (FOMC) purchasing or selling government securities,2. Raising or lowering the discount rate, or3. Changing the reserve ratio.Choices "a", "b", and "c" are incorrect because they are all valid tools to control the supply of money.
If the Federal Reserve wanted to implement an expansionary monetary policy, which one of the following actions would the Federal Reserve take?
Answer(s): B
Choice "b" is correct. Fed purchases of government securities increase the money supply (putting money into circulation), and lowering the discount rate encourages borrowing by member banks and increases the money supply. Hence, these measures would help implement an expansionary monetary policy.Choice "a" is incorrect. Raising the reserve requirement and the discount rate would have the opposite effect of decreasing the money supply.Choice "c" is incorrect. Raising the discount rate and selling government securities would reduce the money supply.Choice "d" is incorrect. Raising the reserve requirement would decrease the money supply, but lowering the discount rate would increase the money supply.
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