Which of the following services is performed by the regional Federal Reserve banks?
A. Issuing government bonds.
B. Holding bank reserves.
C. Bailing out or liquidating failed banks.
D. Determining open market operations.
Answer: B
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Suppose the economy is on the classical range of the aggregate supply curve and has a problem with inflation. According to Keynesian theory, which of the following is an appropriate discretionary fiscal policy to use in this situation?
a. A reduction in the money supply. b. Less government regulation. c. Increase federal spending. d. Higher taxes.
Starting from long-run equilibrium, a large decrease in government purchases will result in a(n) ________ gap in the short-run and ________ inflation and ________ output in the long-run.
A. expansionary; lower; potential B. expansionary; higher; potential C. recessionary; lower; potential D. recessionary; lower; lower