AFK Economic Concepts and Markets

Question 1

Which of the following best describes the federal funds rate?

Accepted Answer

The interest rate banks charge each other for overnight lending of reserves

Answer

The rate banks charge their best commercial customers

Answer

The rate the Federal Reserve charges banks for overnight loans

Answer

The rate the U.S. Treasury pays on 30-year bonds

Question 2

When the yield curve is described as 'inverted,' it means:

Accepted Answer

Short-term interest rates are higher than long-term rates

Answer

Long-term interest rates are higher than short-term rates

Answer

All maturities carry the same interest rate

Answer

The yield curve has shifted upward across all maturities

Question 3

GDP is best defined as:

Accepted Answer

The total market value of all final goods and services produced within a country's borders in a given period

Answer

The total market value of all goods and services produced by a country's citizens worldwide

Answer

The total income earned by a country's residents from all sources

Answer

The total value of a country's exports minus its imports

Question 4

Which monetary policy action would the Federal Reserve most likely take to combat inflation?

Accepted Answer

Increase the federal funds rate target

Answer

Decrease the reserve requirement

Answer

Purchase government securities in open market operations

Answer

Lower the discount rate

Question 5

The 'law of diminishing marginal utility' states that:

Accepted Answer

Each additional unit of a good consumed provides less additional satisfaction than the previous unit

Answer

As price increases, quantity demanded decreases

Answer

As production increases, average costs eventually rise

Answer

The marginal cost of production increases as output rises

Question 6

A country running a current account deficit is:

Accepted Answer

Spending more on foreign goods, services, and transfers than it earns from abroad

Answer

Exporting more goods and services than it imports

Answer

Receiving more foreign direct investment than it sends abroad

Answer

Paying down its foreign debt obligations

Question 7

Which of the following is an example of an automatic economic stabilizer?

Accepted Answer

Unemployment insurance benefits that increase during economic downturns

Answer

A new infrastructure spending bill passed during a recession

Answer

An emergency Federal Reserve rate cut in response to a market crash

Answer

A presidential executive order to freeze hiring