Federal Reserve Notes:
a. Are assets in the balance sheet of the Federal Reserve.
b. Enter the economy when U.S. financial institutions demand cash from the Federal Reserve.
c. Enter the banking system every time the Federal Reserve sells government securities.
d. All the above are true.
e. None of the above is true.
Question 2
Assume that the government increases spending and finances the expenditures by borrowing in the domestic capital markets. If the nation has low mobility international capital markets and a flexible exchange rate system, what happens to the real GDP and net nonreserve-related international borrowing/lending in the context of the Three-Sector-Model?
a. Real GDP rises, and net nonreserve-related international borrowing/lending becomes more positive (or less negative).
b. Real GDP rises, and net nonreserve-related international borrowing/lending becomes more negative (or less positive).
c. Real GDP falls, and net nonreserve-related international borrowing/lending becomes more positive (or less negative).
d. Real GDP and net nonreserve-related international borrowing/lending remain the same.
e. There is not enough information to determine what happens to these two macroeconomic variables.
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