Basic Finance W2 (MIT)

What is the difference between bid and ask prices in the securities market?

• Bid price is the price at which market makers sell securities, while ask price is the price at which they buy.

• Bid price is the price at which market makers buy securities, while ask price is the price at which they sell.

What is the primary tool for affecting reserves in the monetary policy?

• Selective credit controls

• Reserve requirement

• Open market operations

• Discount rate

What is the purpose of the Federal Reserve's conduct of monetary policy?

• To promote stable prices, full employment, and economic growth

• To promote government spending abroad and foreign investment income

• To counter shocks to the money supply

• To control the supply of money and credit

What is the effect of deflation on the economy?

• Stable economic activity and unemployment

• Increased economic activity and decreased unemployment

• Decreased economic activity and increased unemployment

• No impact on economic activity and unemployment

What is the role of the International Monetary Fund (IMF) in the event of a country's deficit in its current account?

• To impose austerity programs on the borrowing nation

• To make loans to less-developed countries

• To require the nation to take corrective action and repurchase its currency with foreign exchange within three to five years

• To purchase foreign exchange from the country with a deficit

What is the foreign exchange market?

• Market for the purchase and sale of goods and services

• Market for the purchase and sale of currencies

• Market for the purchase and sale of stocks and bonds

• Market for the purchase and sale of real estate

What is the purpose of the Balance of Payments accounts?

• To record international monetary transactions in a single-entry bookkeeping system

• To record international monetary transactions in a double-entry bookkeeping system

• To record domestic monetary transactions in a single-entry bookkeeping system

• To record domestic monetary transactions in a double-entry bookkeeping system

What is the effect of a persistent trade deficit and low central bank reserves on a country's currency?

• It may cause a currency crisis and severe devaluation

• It may cause a surplus in the merchandise trade balance

• It may cause a decrease in the federal funds rate

• It may cause an increase in the nation's level of output

What is the primary tool used by the Federal Reserve to achieve the target federal funds rate?

• Open market operations

• Discount rate

• Reserve requirement

• Selective credit controls

What is the measure of the rate of inflation?

• Producer Price Index (PPI)

• Unemployment Rate

• Consumer Price Index (CPI)

• Gross Domestic Product (GDP)